Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — EMPLOYMENT

TEC Courses (Sheffield)

Mrs. Helen Jackson: To ask the Secretary of State for Employment what percentage of students entering TEC courses in the Sheffield area (a) complete their course and (b) obtain employment when they finish.

The Parliamentary Under-Secretary of State for Employment (Mr. Patrick McLoughlin): In Sheffield in 1991–92, 34 per cent. of people leaving youth training and 61 per cent. of those leaving employment training had completed their agreed training. 51 per cent. and 32 per cent. respectively of all those leaving courses were in employment six months after leaving.

Mrs. Jackson: In view of those appalling figures, showing that, at the end of youth training, two out of every three people on the scheme have no job to go to, and that two out of every three students on employment training are still out of work six months later, does the Minister accept that it is now time to put resources and money into real education and training for manufacturing jobs, and to make resources available so that local authorities can finance students properly through discretionary grants?

Mr. McLoughlin: I am sure that the hon. Lady will welcome the fact that, since 1986, unemployment in her constituency has fallen by about 24 per cent., and in the constituency of Sheffield, Central by 21 per cent. In Sheffield, Brightside, unemployment has fallen by 21 per cent. since 1986, and in Sheffield, Hallam by about 36 per cent. I should have thought that even the hon. Lady would have welcomed that.

Mr. Sykes: Is my hon. Friend aware that, some time ago, when Hamleys, the famous toy shop in Regent street, wanted to resettle in Sheffield, it was said that its rates in Sheffield would be higher than the rates in Regent street? Does my hon. Friend not agree that that is an example of the kind of ridiculous practices that Sheffield city council has pursued over the past 25 years?

Mr. McLoughlin: My hon. Friend's point about recruitment is true. That is why I am pleased that the Meadow Hall development has opened and made Sheffield council think carefully about how to attract business to its area.

Mr. Tony Lloyd: Is it not astonishing that the Minister should answer the supplementary question asked by my

hon. Friend the Member for Sheffield, Hillsborough (Mrs. Jackson) by citing unemployment figures, of all things? For how many months now have the Government increased unemployment? Yet the Minister cites unemployment figures in their favour. Is not the reality that the training, whether on ET or YT, and whether in Sheffield or nationwide, is pathetic, and that fewer than a quarter of the people on ET and fewer than one third of those on YT obtain a qualification? The last thing we need today is more promises of cheap low-quality training. What does the Minister intend to do to give decent-quality training to people out of work?

Mr. McLoughlin: What is pathetic is the way in which the Opposition continually carp and talk about training, yet have opposed every training scheme that the Government have introduced.

Mr. Evennett: Will my hon. Friend confirm that Britain is the only country in Europe that offers training places to 16 and 17-year-olds without a job? Should we not therefore be grateful, and encourage young people to take up the training places, with a view to getting jobs at the end of the placement?

Mr. McLoughlin: Indeed, my hon. Friend is right. Most young people who go on courses appreciate that youth training has been a substantial help in finding employment. The Opposition have said many times that we are failing to meet the youth training guarantee, but they have gone off talking about that subject because of the successful manner in which the TECs have managed to fulfil the guarantee overall.

Labour Statistics

Dr. Wright: To ask the Secretary of State for Employment if she will give figures on employment levels in manufacturing industry in each year since 1979.

The Secretary of State for Employment (Mrs. Gillian Shephard): Employment in manufacturing in Britain was 4,593,000 in September 1992 compared with 7,253,000 in June 1979. Information for the intervening years can be obtained from the NOMIS database in the House Library.

Dr. Wright: Does not the Secretary of State understand that those figures tell the whole story about what has been happening to this economy since 1979? Three million jobs have been lost in manufacturing industry and half a million jobs have been lost in manufacturing in the west midlands alone. Does she not understand that it is an economic disaster because, when we get a competitive devaluation, we do not have a competitive base to take advantage of it? It is a social disaster because it destroys lives, families and communities—[HON. MEMBERS: "Question."] Finally, the question to the Secretary of State is this: when she spoke to the Chancellor of the Exchequer this morning, did she say, "Come on: the Prime Minister has told us we made a mistake. The time now is for jobs, jobs and more jobs"? Or did she say, "Let's have"—

Madam Speaker: Order. I call the Secretary of State.

Mrs. Shephard: As for what transpired this morning, the hon. Gentleman will have to possess his soul in patience—if he is capable of doing that. Instead of doing what the Labour party usually does and talk down British


achievements, the hon. Gentleman should be congratulating British manufacturers on their highest ever export levels and on their outstanding improvements in productivity and profitability over the past decade. Or perhaps the hon. Gentleman advocates a return to Labour's manufacturing policy: overmanning, millions of working days lost through strikes and Red Robbo.

Sir Michael Neubert: Is not employment in manufacturing declining in most major industrialised countries, even in Germany, whose workers are now the most expensive in the world? Is it not extraordinary that, with its commitment to the statutory minimum wage and support for the social chapter, the Labour party wants to take us down that uncompetitive path?

Mrs. Shephard: Yes, that is indeed extraordinary. As my hon. Friend has said, manufacturing employment peaked in this country in the mid-1960s, and there has been a steady decline under all Governments since, as there has been in all other major industrialised countries. However, if we followed the policies of the Labour party, we would quickly cease to be competitive.

Mr. Barry Jones: Does the right hon. Lady know that, in my constituency, 500 of the best kind of manufacturing jobs have been lost at British Aerospace, Broughton, on the airbus project? Is she aware that it is feared that very soon more jobs will be lost in the same factory on the production line of the world-beating executive jet, the 125 series? May I have her assurance that she will tell the Cabinet that development area status should not be taken from my constituency? Does she understand that manufacturing jobs and regional policy go together? We want a national strategy for manufacturing.

Mrs. Shephard: I am reminded of the hon. Gentleman's passionate advocacy of free trade in our employment debate last week. I note what he says about the status of his constituency. As he will know, that is not a matter for me: the potiential job losses that he mentions are a matter of commercial decisions for the company concerned. However, whatever, happens, my Department in the form of TECs and the Employment Service, stand ready to help wherever people face unemployment.

Labour Statistics

Mr. Robathan: To ask the Secretary of State for Employment what measures she intends to bring foward to assist the unemployed in the east midlands.

Mr. McLoughlin: New arrangements, announced at the time of the autumn statement, will offer almost half a million more opportunities on our programmes in 1993–94 than we are providing this year.

Mr. Robathan: I thank my hon. Friend for that response. He will know that my constituency of Blaby is not one of those badly affected by the current high rates of unemployment. While recognising the awful and tragic consequences of unemployment, will my hon. Friend add his not inconsiderable weight in support of the excellent work of the Leicestershire TEC in my area and, in particular, the imaginative approach of the career choice scheme which is encouraging disaffected youngsters to go back into employment training, the child care voucher scheme—

Madam Speaker: Order. May we have a question?

Mr. Robathan: Will my hon. Friend particularly add his support to the close involvement of the TEC with the Leicestershire city challenge scheme and initiative fostering a partnership between the private and public sectors?

Mr. McLoughlin: My hon. Friend's point is correct. I shall be in Leicester tomorrow to sign the city challenge agreement between the Government and the city challenge organisation.

Mr. Janner: Does the Minister agree that the hon. Member for Blaby (Mr. Robathan) is as wrong as his noble predecessor in his approach to the handling of unemployment, and that what matters in Leicester and the rest of the east midlands, where the traditional manufacturing industries of hosiery, knitwear and footwear are collapsing, is not to train unemployed people for jobs that will not exist but to help existing industries to stay alive and employ people?

Mr. McLoughlin: I am surprised that the Chairman of the Employment Select Committee downgrades and denigrates the training opportunities that are provided throughout Britain. That is an appalling indictment of him. The important factor is the amount of inward investment which has been attracted. The east midlands has benefited greatly from that inward investment. I should have thought that even the hon. and learned Gentleman might have welcomed that.

Mr. Nicholas Winterton: Does my hon. Friend consider that those who wish to undertake training should be encouraged? Therefore, does he believe that a good idea for helping the unemployed in the east midlands might be to make expenses incurred in whatever way in undertaking training allowable against tax?

Mr. McLoughlin: My hon. Friend asks a junior Minister to comment on tax matters. Today in particular, I do not wish to embark on that.

Mr. Barnes: If the initial pit closure programme is implemented in Derbyshire and Nottinghamshire, some 30,000 jobs in coal mining and associated industries will be lost. What will that do to help unemployed people's prospects of getting work in the east midlands? Will he have a word with the Secretary of State for Trade and Industry to tell him that it is time to call the dogs off?

Mr. McLoughlin: My right hon. Friend the President of the Board of Trade will make a statement on the White Paper in due course. I should have thought that even the hon. Gentleman might welcome the Toyota investment in Derbyshire. That £700 million investment is the largest single investment in any country for some considerable time.

Jobcentres (Gloucestershire)

Mr. Clifton-Brown: To ask the Secretary of State for Employment how effective the jobcentres in Gloucestershire have been in placing people back into work.

The Minister of State, Department of Employment (Mr. Michael Forsyth): Since 1 April 1992 jobcentres in Gloucestershire have placed 12,270 people in work—an increase of 18 per cent. on the same period last year.

Mr. Clifton-Brown: My hon. Friend will be aware that every person who is newly unemployed is entitled to go to a jobcentre and have an in-depth interview for up to 45 minutes—[Interruption.]—to plan how to get back into work. Is not that, combined with the success of the jobcentres which my hon. Friend has just announced, a practical measure which shows that the Government are prepared to help the unemployed, unlike the Labour party, which merely utters platitudes?

Mr. Forsyth: My hon. Friend is right. I am sure that the House will have noticed the jeers from Opposition Members when he referred to the excellent work done by the Employment Service. Of those people who become unemployed, two thirds find work within six months as a result of the efforts of the Employment Service. We owe a debt of gratitude to the Employment Service. For the longer-term unemployed, a range of measures, including job clubs, have been successful in placing long-term unemployed people back into work.

Child Care (West Midlands)

Mr. Anthony Coombs: To ask the Secretary of State for Employment what steps the TECs have taken to encourage the provision of child care in the west midlands.

Mrs. Gillian Shephard: The work of TECs to set up child care provision in the west midlands will be boosted by the £45 million child care grant which I announced on 16 December last year, to be introduced this April.

Mr. Coombs: Given that Britain employs a higher proportion of the female population than any other country in Europe bar one, and that in the past three years the number of registered day nurses has doubled, does my right hon. Friend agree that there is enormous potential in the private sector to provide child care such as that provided by the excellent Hickory Dickory Dock nursery in my constituency? Will she do everything that she can to encourage that?

Mrs. Shephard: I am delighted to hear of my hon. Friend's enthusiasm for the Hickory Dickory Dock scheme. He is right: there has been a large growth in private child-minding and nursery provision. However, there is no doubt that my initiative, which has been keenly welcomed by playgroups the working mothers associations and others, will be a very useful supplement to the work that he describes, including that of the Hickory Dickory Dock scheme.

Job Clubs (Wales)

Mr. Sweeney: To ask the Secretary of State for Employment what assessment she has made of the performance of job clubs in Wales.

Mr. Michael Forsyth: The job club programme is very effective in helping long-term unemployed people in Wales. In the last year, job clubs in Wales have helped nearly 12,000 people, the majority of whom have found work as a result, with others going on to training, further education or self-employment.

Mr. Sweeney: Will my hon. Friend join me in congratulating those who operate the job clubs on their success? Does he agree that the effectiveness of their work is vital in maintaining the morale of those who become unemployed?

Mr. Forsyth: I am very happy to join my hon. Friend in congratulating those who run the job clubs. Eighty per cent. of the clubs have been contracted out to private-sector organisations, and approximately 53 per cent. of the people participating in job clubs in Wales are going on to employment, with a further 14 per cent. going into further education, training or self-employment. That is one reason why we will be expanding the number of job club places by some 75,000 during the next year.

Mr. Wigley: Does not the Minister realise that what we need in Wales are not job clubs, but jobs themselves? Does he not recognise that, in the old coal-mining areas and the old slate quarrying areas, we have long-term unemployment among the under-25s? What is he going to do to provide jobs for those people, rather than the apology provided by his job club regime?

Mr. Forsyth: If the hon. Gentleman had been listening, he would have heard that job clubs are singularly successful, in placing people in work, particularly in Wales. The hon. Gentleman should also know that more than 80 per cent. of people placed in jobs by job clubs are filling vacancies which have not been advertised through jobcentres.
The hon. Gentleman ought to be a little less gloomy. The facts are that, in the last year, manufacturing output is up, exports are up, investment is up and real incomes are up. The hon. Gentleman really ought to cheer up and give credit where credit is due.

Working Carers

Mr. Wicks: To ask the Secretary of State for Employment what attention her Department is giving to the needs of those who work and also care for relatives.

Mr. McLoughlin: The Department's policy of encouraging flexible working arrangements is of particular benefit to those who combine work with family responsibilities.

Mr. Wicks: Given the significance of the worker/carer issue—one in eight full-time employees and one in five part-time employees have caring responsibilities—will the Government introduce firmer employment measures to complement the community care strategy?

Mr. McLoughlin: There are a number of areas in which the Government have helped. The Department is always willing and ready to advise employers on the best way to arrange flexibility for people with care responsibilities.

Mr. Rowe: Does my hon. Friend agree that the community care proposals have already brought into being' an extraordinary range of varied provision for all kinds of people with such difficulties, which are very real? Will he give an assurance that his Department will join the Department of Health in encouraging the further expansion of these very desirable developments?

Mr. McLoughlin: I give my hon. Friend that assurance.

Work in the Community

Mr. Michael Brown: To ask the Secretary of State for Employment what plans she has to encourage work in the community.

Mrs. Gillian Shephard: Opportunities to undertake community work are currently available on employment action and other programmes run by my Department. My hon. Friend will be aware that training for work, which comes into force at the end of the month, will combine employment training and employment action.

Mr. Brown: Is my right hon. Friend aware that the employment action programme currently enables people to work in the community, cleaning up heritage sites and removing graffiti? Can she give some idea of how she might expand this programme? May I suggest that the railway stations between Newark and Cleethorpes, which suffer from graffiti, could come within the ambit of the scheme?

Mrs. Shephard: There is no doubt that the various tasks undertaken by people on the employment action scheme are not only useful but valuable. My hon. Friend clearly has his own enthusiasms—other tasks include helping elderly people, teaching literacy and numeracy skills and, in my constituency, running a museum.

Mr. McAllion: If the Secretary of State is serious about encouraging work in the community, why does she not intervene directly in the community of Dundee, where the management of Timex have sacked the entire work force for the crime of exercising their legal rights under the Government's trade union legislation? Is the Secretary of State content to add to the ranks of mass unemployed and so create the conditions in which those out of work envy those in work, those in work fear those out of work and bad employers such as Timex can drag down wages and conditions by exploiting the existing conditions?

Mrs. Shephard: The issues between Timex and its employees are a matter for the company; I note that the Advisory, Conciliation and Arbitration Service has not yet been called in.

Mrs. Peacock: Does my right hon. Friend agree that more people who are presently unemployed would be willing to become involved in voluntary work if they did not lose their entitlement to benefits when they undertook that work?

Mrs. Shephard: Unemployed people can engage in unpaid voluntary work and retain their benefits as long as they continue to look for work and are willing to give up that voluntary work at 24 hours' notice. My hon. Friend makes a valid point and, as she doubtless knows, we intend to build on the successes of employment action with other schemes.

Vacancies

Mr. Hardy: To ask the Secretary of State for Employment how many unfilled vacancies are currently recorded by her Department; and what is the extent of duplication of these numbers where vacancies are listed at more than one office.

Mr. Michael Forsyth: Some 104,700 in January 1993. There is no duplication, as each vacancy is counted only once.

Mr. Hardy: Will the Minister give the House a categorical assurance that no duplication has previously occurred and been counted? Does he accept that if duplication has occurred, it may provide an innocent explanation for ministerial claims to have observed the green shoots of economic recovery? In that case, the cause would have been duplication and error, not villainy, as some of us suspect.

Mr. Forsyth: I am astonished at what the hon. Gentleman has said. I should have thought that he would know that the Employment Service in South Yorkshire has placed about 50 per cent. more people in jobs than two years ago. The Employment Service advertises a minority of the vacancies, which is why it has been advertising for more employers to place vacancies with it. The hon. Gentleman is well aware—as is everyone in the House—that there is a recession. However, the Employment Service is doing an excellent job and I am sorry that the hon. Gentleman seeks to denigrate its excellent activities.

Mr. Forman: I welcome my hon. Friend's clarification that there is no duplication, but is it not also true that the officially recorded statistics for vacancies understate the true number as they do not take account of those that are privately notified?

Mr. Forsyth: My hon. Friend is absolutely right. Vacancies may be advertised in several jobcentres so that people have an opportunity to apply for the jobs. We do not count the vacancies twice, but individually.

Mr. Dobson: Will the Minister confirm that, according to the Government's figures, there are 31 people chasing every job vacancy in the Chancellor's constituency, 181 people chasing every job vacancy in the Chief Secretary's constituency, and no fewer than 195 people chasing every job vacancy in the constituency where the Prime MInister grew up?

Mr. Forsyth: What I will confirm is that, if the hon. Gentleman had had his way and there was a minimum wage and a payroll tax, and we had embraced the social chapter, there would be 2 million more people out of work in this country.

Workfare

Mr. Steen: To ask the Secretary of State for Employment what research her Department is currently undertaking into workfare; and if she will make a statement.

Mrs. Gillian Shephard: We are considering a range of options to help unemployed people to use their time constructively.

Mr. Steen: Does the Secretary of State remember that in 1975 I, with Sir Leon Brittan, wrote to The Times advocating that the young unemployed, while waiting to join the work force, should be encouraged to become a force for good by being given opportunities to provide personal service in the community for the benefit of people less fortunate than themselves and should be paid a wage equivalent to their unemployment benefit? Eighteen years on, the situation has not changed. Young people should be given an opportunity to do something, rather than take taxpayers' money and do nothing in return.

Mrs. Shephard: Of course, I remember my hon. Friend's letter very well. I know that his interest in these matters goes back a considerable time. He has always argued that the principle of mutual responsibility should be applied in the designing of schemes for unemployed people—particularly young unemployed people—and I agree.

Mr. Cryer: Is not it the job of the Government to avoid mucking about with marshmallow schemes like workfare to create fake jobs and instead to adopt an economic policy that will encourage manufacturing industry to provide proper jobs for all our people? While the right hon. Lady is about it, will she condemn those people who take taxpayers' money but do nothing in return, such as Tory Members of Parliament, who take their salaries and also line their pockets with the proceeds of outside job after outside job?

Mrs. Shephard: Some hon. Members take two lots of money from the taxpayer. I refer, for instance, to those who have a dual mandate in Europe. Conservative Members know that people want real jobs. That is why our policies have been aimed at producing the lowest inflation rate that we have had for 25 years, the lowest interest rates in the European Community, a competitive exchange rate, the lowest level of business taxation, and non-wage costs at 61 per cent. of the level of those in Germany. That is what we mean, but not what the hon. Gentleman means, by the right framework for real jobs.

Mr. Paice: When considering workfare, will my right hon. Friend look behind the hype of exploitation and all the other adjectives that are used to describe the scheme? Will she recognise that, for many people, doing something useful in return for the money that they receive as benefit is a means of retaining some pride in themselves and that there is a sound and valid argument for the introduction of the widest possible opportunity for this to happen?

Mrs. Shephard: It is certainly desirable that unemployed people be helped to keep in touch with the world of work while they are being assisted to seek and to train for work. My hon. Friend will be aware of employment action and of the range of opportunities that are thereby made available. As I said earlier, we intend to build on success of that kind.

Mr. Galbraith: May I congratulate the Minister of State for rebuking the Prime Minister's ideas on workfare? In the 5 February issue of Today, the hon. Gentleman said:
I have seen workfare, and it does not work.
Can the Secretary of State confirm that her Minister of State and her Department will continue their opposition to workfare and not simply use it as a cheap form of labour or as another means of fiddling the unemployment statistics?

Mrs. Shephard: For the hon. Gentleman's information, I can say that the Prime Minister, in his Carlton club speech, did not suggest that all-embracing, large-scale schemes should be introduced to require people to work in return for benefit. Nor, indeed, did he use the word "workfare". Given the close attention that the hon. Gentleman pays to these matters, I am surprised that he did not notice that the Minister of State, my hon. Friend

the Member for Stirling (Mr. Forsyth), condemned some of the schemes that he had seen in the United States as being costly and ineffective.

Retraining

Mr. Rathbone: To ask the Secretary of State for Employment what assessment she has made of the need for retraining of those in jobs to meet present and future job requirements.

Mr. McLoughlin: Our assessment is that more effective investment in the skills of people in work is needed. The Government's policies are operating to encourage such investment. In particular, training and enterprise councils are promoting the use of the new "Investors in People" standard.

Mr. Rathbone: Does my hon. Friend accept that, with fast-developing technology, there is a continuing requirement for the retraining of people in jobs and the retraining of management and that TECs, such as Sussex TEC, have a special role to play?

Mr. McLoughlin: I agree with my hon. Friend. The TEC movement has an important role and it is interesting to note that each TEC develops policies most suited to its own area.

Mr. Enright: Since the Government have squandered substantial oil revenues and have frittered away immoral earnings from gas, electricity and water, what confidence can ordinary working people have in their investment in retraining?

Mr. McLoughlin: They can have the confidence that they have shown in the last four elections by re-electing us.

Mrs. Browning: Is my hon. Friend aware that one group of people who are particularly anxious to be retrained are those aged over 45? Will he guarantee that he will do all that he can to encourage the TECs and other training organisations not to discriminate against people on grounds of age? Over-45s have much to offer and they are as entitled to a restart as anyone else.

Mr. McLoughlin: I agree entirely with my hon. Friend. If I hear of any TECs that are discriminating against older people, I will take up the matter with them.

Low Pay

Mr. Burden: To ask the Secretary of State for Employment what is her estimate of the numbers working in the public sector earning less than the Council of Europe's low pay threshold analysed between (a) full-time male employees, (b) full-time female employees, (c) part-time male employees and (d) part-time female employees.

Mr. Michael Forsyth: There is no recognised Council of Europe low pay threshold.

Mr. Burden: The Government may not recognise it, but poverty pay does exist. Does the Minister recognise that a hospital domestic, for instance, earns £121·14 for a 39-hour week, less than is paid at Tescos and £78 per week less than the average for women's pay? Does he recognise that Government pay policy, which they intend to impose,


will give that woman 90p extra? Is not it disgraceful that the Government are prepared to condemn their own employees to poverty pay?

Mr. Forsyth: If the hon. Gentleman is concerned about poverty, he should recognise that the biggest single cause of poverty is unemployment and that his party's commitment to a minimum wage would add 2 million to the unemployed. The hon. Gentleman asked about European standards on minimum wages. Those countries that have embraced a minimum wage are the countries which are struggling with the highest unemployment, like socialist Spain.

Mr. John Marshall: Does my hon. Friend agree that the low paid would prefer a job with low pay to no job? Is not it immoral for hon. Members to seek to legislate for the unemployment of their constituents rather than their continued employment?

Mr. Forsyth: I agree entirely with my hon. Friend. Both in the House and in Europe, people have to recognise that passing legislation for better working conditions does not deliver better working conditions unless they have been earned. One thing that we have to do if we are to get unemployment down is to be more competitive. The continual attempt by Opposition Members to add to the cost of employment will add to the numbers on the dole.

Ms Quin: Is not the gap between the highest and the lowest paid wider now than at any time since 1886? Whereas in other European countries the pay gap has remained constant in recent years, it has widened dramatically in Britain. Does not that show clearly that besides the large numbers of people who are unemployed there is also a great problem of people on low pay? Are not all those people getting a poor deal from Tory Britain today?

Mr. Forsyth: Even Mr. Delors has recognised the problem of Europe pricing itself out of world markets. He suggested the other day that we needed a global social chapter to address that problem. I venture to suggest that the hon. Lady should look at the figures. Germany now has 50 per cent. of its labour costs—[HON. MEMBERS: "Oh!"] Labour Members may jeer, but half of German labour costs arise from non-wage costs. That compares with 10 per cent. in Pacific rim countries and 25 per cent. in Japan. If we cannot compete, jobs will leave Europe and go elsewhere. The hon. Lady should recognise that.

Mr. Nigel Evans: Does my hon. Friend agree that many British businesses carefully monitor their total wage costs and that if a minimum wage were imposed on them they might have to get rid of some of their employees? Does he further agree that higher wage costs would lead to higher inflation, at which Labour Members are experts?

Mr. Forsyth: I agree with my hon. Friend. The key to competitiveness and employment lies in keeping wage costs down and ensuring that they reflect performance and productivity. That is the way forward. The best way to determine wages and conditions in the workplace is negotiation between the employer and employees. That is not a matter for government either at national or European level.

Redundancies (West Midlands)

Mr. Robert Ainsworth: To ask the Secretary of State for Employment what was the total number of redundancies in the west midlands in the last quarter for which figures are available.

Mr. McLoughlin: The latest available figures from the quarterly labour force survey show that 25,000 people were made redundant in the west midlands in the three months before the survey of the summer of 1992.

Mr. Ainsworth: Does the Minister accept that that is proof that redundancies are continuing at a staggering rate? There are now 7,266 people out of work in my constituency, with 62 people chasing every job vacancy in the west midlands. Do the Government have any responsibility for that?

Mr. McLoughlin: The hon. Gentleman said that unemployment in his constituency is 7,266, but he failed to say that that it is 16 per cent., or 1,406, lower than in 1986. Unemployment in the constituency of Coventry, North-West is 12 per cent. lower and in Coventry, South-East it is 23 per cent. lower. I should have thought that the hon. Gentleman might have welcomed that.

Mr. Fabricant: Has my hon. Friend visited Stuttgart or Munich recently and seen the number of BMWs and Mercedes that are sitting unsold in car parks? Does not he welcome the 350 new jobs that have been created by Lucas, the hundreds of new jobs that will be created by Jaguar and the 3,000 new jobs that will be created by Toyota?

Mr. McLoughlin: I am grateful to my hon. Friend. I do not share his travel experience, but I very much welcome the investment that has been made in Britain, which would not have been made if we had followed the policies proposed by the Opposition.

Mr. Grocott: Does the Minister remember the heady days of the 1960s, when he was at school and when engineering companies in the west midlands were thriving, engineering apprentice schools were full to overflowing and there was optimism abroad and plenty of jobs? Is not it crystal clear that the records of the Labour Governments of the 1960s and 1970s on manufacturing industry show that Labour Governments work and Tory Governments do not?

Mr. McLoughlin: That is rather strange coming from the Member who represents Telford, given the amount of inward investment that Telford has been fortunate enough to secure. I should have thought that the hon. Gentleman would welcome that for his constituents.

Unemployment (East Hertfordshire)

Mr. Wells: To ask the Secretary of State for Employment what measures she is bringing forward to assist the unemployed in east Hertfordshire.

Mrs. Gillian Shephard: The new employment and training measures that will begin in April offer the widest range of help to unemployed people that we have ever provided. We expect to offer almost half a million more opportunities in our programmes in 1993–94 than we are providing this year.

Mr. Wellš: I thank my right hon. Friend for that constructive and helpful reply, for which my constituents in Hertfordshire and Stortford will be grateful. Are not the depressing remarks that are constantly made by Labour Members about unemployed people being on the scrapheap entirely refuted by her constructive words?

Mrs. Shephard: My hon. Friend is right to point out the extremely positive work that is done by the Employment Service, which last year placed 1·4 million unemployed people back in work.

Mr. Olner: Does not the Minister realise that not only in east Hertfordshire but all over the country people need proper employment? Is she aware that only last week Rolls-Royce announced further redundancies of very highly skilled personnel? When will the Government recognise that the manufacturing base of this country is disappearing fast under their leadership? When will they go and let people who want to work work properly?

Mrs. Shephard: I have to point out to the hon. Gentleman that, although, of course, I share his concern for anyone who is facing unemployment or redundancy, he and his hon. Friends have absolutely no constructive or uniform views on either the economy or employment. It would be a great help to him and his hon. Friends if the official Opposition spokesman on employment stopped his vendetta against employers, whom he continues to describe as scum, and bankers, whom he now describes as shortsighted, stupid and on the make. That is not a very constructive approach to employment.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Byers: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister (Mr. John Major): This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Mr. Byers: The Prime Minister will know that, according to the latest Government figures, there are now 39 unemployed people chasing every job vacancy. Is the Prime Minister aware that this morning Littlewoods pools stated that the odds against winning a dividend on their coupon are 39 to one? Can the Prime Minister explain to the House how it is that, after 14 years of Conservative Government, an unemployed person has as much chance of getting a job as of winning the pools?

The Prime Minister: The hon. Gentleman neglected to mention that in recent years in his constituency unemployment has fallen by 20 per cent. Perhaps that is something that he should have borne in mind.

Mr. Bill Walker: Is my right hon. Friend aware that the taking-stock exercise has gone down extremely well in Scotland? Will he confirm that this Government will never bring forward proposals for unwanted, expensive regional assemblies in England, where over 80 per cent. of taxpayers and the population live, nor will they bring forward proposals for assemblies in Wales, Scotland and Northern Ireland?

The Prime Minister: I can confirm that, as, indeed, I did at the last general election. We do not believe that such extra assemblies would be helpful either to democracy or to good government in any part of the United Kingdom. I know that there are contrary views in the House. On the Opposition Benches we find unionists, federalists, separatists and devolutionists. That does not add up to a great deal; often not even effective opposition.

Mr. John Smith: Will the Prime Minister publish the report by the Department of Trade and Industry on the state of Britain's manufacturing industry?

The Prime Minister: The report to which the right hon. and learned Gentleman refers was private advice to Ministers and I do not propose to publish it all. I am surprised that the right hon. and learned Gentleman should raise that question the day after the news that manufacturing output rose to its highest level for 18 months and that it was up on the year before. Perhaps for once the right hon. and learned Gentleman will acknowledge good news.

Mr. John Smith: So much for open government. The Prime Minister knows that he is the first to publish information whenever it suits him. Why does he wish to conceal from the British public the devastating assessment of the Department of Trade and Industry in his own Administration—I quote from its report—that our manufacturing product base is weak and deteriorating?

The Prime Minister: The right hon. and learned Gentleman is up to his old tricks yet again. Whatever he can do to talk down British industry, he will do. If he read a little further in the report from which he gleans his information he would recognise that our productivity has improved faster than that of Germany, France, Italy or the United States. I ask again: when will the right hon. and learned Gentleman help to talk up British industry and stop talking it down?

Mr. John Smith: Does not the Prime Minister now see that he should publish the report, because it also says that the main source of new products is imports, that British industry is fundamentally weak, suffering from inadequate investment in new technology, and that there are flaws which it will take decades to remove? Is not it clear to everyone that the reason why he is frightened to publish it is that it reveals that 14 years of Conservative government have done deadly damage to British industry?

The Prime Minister: Perhaps the right hon. and learned Gentleman will explain why output in the engineering industry is rising, computers are rising and textile output is rising. Perhaps he will explain why the CBI survey shows yet another increase in output expectations—[Interruption.]

Madam Speaker: Order. The House must come to order.

The Prime Minister: They cannot accept anything but bad news as far as this country is concerned, so they will not like the fact that manufacturing investment has risen in each of the past three quarters. Those are the figures which the right hon. and learned Gentleman never mentions. He knows them, but they never pass his lips.

Mr. Brazier: Does my right hon. Friend agree that the measure introduced temporarily last November to ease the


Treasury rule on capital receipts for housing authorities was sensible? Will he join me in condemning what is happening in Canterbury, where the Treasury rule is being abused and the housing account is being raided by the Liberal-controlled authority to squander funds on leisure facilities?

The Prime Minister: I was not myself aware of that particular point, but my hon. Friend has made me aware of it in a most forceful way. I shall pass it on to my right hon. Friend.

Mr. McAvoy: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister: I refer the hon. Member to the answer I gave some moments ago.

Mr. McAvoy: Hon. Members on both sides of the House know that one sign of a weak Prime Minister is constant clarification of what he really meant to say. Last Tuesday the Prime Minister talked about "when" Scottish water will be privatised and then tried to cover up by saying that he should have added the words "if implemented". Does the Prime Minister accept that such weak behaviour fully justifies the Paul Johnson quote:
Major is what he is: a man from nowhere, going nowhere, heading for well merited obscurity as fast as his mediocre talents can carry him"?

The Prime Minister: When the hon. Gentleman gets here, perhaps he can make that sort of remark.

Mr. Rathbone: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mr. Rathbone: Following my right hon. Friend's answer to the Leader of the Opposition, is he aware that people in manufacturing are indebted to him for his confirmation of the importance of those who work making things? Will he spend a moment today commending the engineering skills that make that possible?

The Prime Minister: I shall certainly be happy to do as my hon. Friend says. As he knows, and as I have repeatedly made clear, I believe that manufacturing is vital to the United Kingdom economy and that engineers have a key part to play in that. Figures released yesterday showed an encouraging picture, with output in electrical and mechanical engineering rising strongly, as did manufacturing output overall.

Mr. Eric Clarke: This is the first chance that I have had to ask the Prime Minister a question. When are the Government going to implement the recommendations of the Industrial Injuries Advisory Council, which stated that emphysema and bronchitis should be considered as industrial diseases for people who have had mining experience? Is the delay one that saves the Government money since, as we have seen in the past, the claimants die off?

The Prime Minister: The report has been with my right hon. Friend the Secretary of State for Social Security, who has been discussing it with colleagues. I hope that an announcement will be able to be made very shortly.

Sir Michael Grylls: Does my right hon. Friend agree that it is rather a sorry reflection on the standards of the Opposition that the Leader of the Opposition has to rely on the material—

Madam Speaker: Order. Let me remind the hon. Gentleman that the Prime Minister is responsible only for Government policy, not for what the Leader of the Opposition gets up to.

Sir Michael Grylls: Will my right hon. Friend encourage the Leader of the Opposition to visit British industry, where he could see some of the great successes such as in motor cars, television and the chemical industry, where we are now leading the world?

The Prime Minister: I would endeavour to encourage that understanding opposite. I am sure that the right hon. and learned Gentleman heard what was said and I look forward to him taking note of it.

Mr. Tony Banks: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister: I refer the hon. Member to the answer I gave some moments ago.

Mr. Banks: I realise that everyone's mind is on the Budget, but may I ask the Prime Minister to give some thought today to the future plight of great whales, which has a price beyond calculation? Does he recall when some of us came to 10 Downing street to present a petition signed by half a million people protesting about Norway's intention to carry on with commercial whaling? Will he now make a protest to the Norwegian Prime Minister so that she and everyone else in Norway knows that if Norway goes ahead with commercial whaling, there will be no place for it in the Community and that appropriate sanctions will be taken against that country?

The Prime Minister: I will certainly raise the point that the hon. Gentleman mentions, which he has raised with me before and which we have raised with Norway on a number of occasions in the past. But I will not take the hon. Gentleman's advice on the second point. Norway is keen, I think, to join the Community and I hope that in due course she will.

Mr. Faber: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mr. Faber: In the light of reports last week that about 30 per cent. of 14-year-olds now achieve a reading age of between nine and 11, does my right hon. Friend agree that it is more important than ever that these children are rigorously tested regularly and that the results are made available to their parents? Will my right hon. Friend join me in condemning the disgraceful action proposed by the National Association of Schoolmasters/Union of Women Teachers which will wreak havoc in the classroom?

The Prime Minister: I very much agree with the thrust of my hon. Friend's remarks. No one can be happy with the level of achievement in English that is thrown up by the report, but if we are to help pupils and raise standards, we need testing and the national curriculum. If we get the tests, we shall see which children are falling behind and we shall then be in a position to take action to help them. I


would certainly deplore any action to disrupt those tests and I look for support in that from every part of the House.

Mrs. Fyfe: Would the Prime Minister like to demonstrate his support for open government by instructing the Secretary of State for Scotland to publish details of the secret correspondence he had with the leader of the Scottish National party?

The Prime Minister: I rather thought that it had been published.

Mrs. Gorman: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mrs. Gorman: During his visits behind what used to be the iron curtain, did my right hon. Friend have a chance to go shopping, as I did recently on a visit to Kiev, where I discovered that the contents of the very best department store were about the equivalent of a boot sale on a bad Sunday afternoon? Is not it true that, despite the attempts of the Opposition to talk this country down, this is still the best democracy in the world? But, before we hand over our government to Brussels, should not we consult the British people through a referendum?

The Prime Minister: For one magical moment I thought my hon. Friend was going to carry me entirely with her. I strongly agree with the first part of her question and I think that no one is in any doubt about the acutely difficult situation faced by the Russian Parliament and by the Russian leadership at the moment. We very much hope that the Group of Seven will be able to help the reform

movement in Russia and we certainly intend to do so. So far as the referendum is concerned, I can give no comfort to my hon. Friend.

Mr. Miller: To ask the Prime Minister if he will list his official engagements for Tuesday 16 March.

The Prime Minister: I refer the hon. Member to the answer I gave some moments ago.

Mr. Miller: On 31 March last year, the Chancellor of the Exchequer told Channel 4 News:
We will not have to increase taxes. I cannot see any circumstances in which that will be necessary.
Does the Prime Minister appreciate that if the Chancellor breaks that pledge in a few moments' time, no one will ever trust anybody on the Government Benches again?

The Prime Minister: The hon. Gentleman will not have long to wait on that point. It is an odd question to come from him, when the leader of his party said recently:
Well, we change our policies as we move towards a different election. We're not necessarily committed to what we did at a particular election.

Mr. Bennett: On a point of order, Madam Speaker. May I ask you to confirm that it is the normal convention of the House that when a Minister quotes from a document, that document should be placed on the Table of the House? As the Prime Minister quoted from a report on the state of manufacturing industry, can we take it that that report will now be placed on the Table of the House?

Madam Speaker: If a direct quotation was made from a state paper, the Minister in question should table that paper for the entire House.

WAYS AND MEANS

Budget Statement

Mr. Deputy Speaker (Mr. Michael Morris): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor's speech, copies of the Budget resolutions will be available to hon. Members in the Vote Office.

The Chancellor of the Exchequer (Mr. Norman Lamont): In my Budget last year, I announced a far-reaching reform that was supported, I believe, on all sides of the House. From November this year, public expenditure and taxation will be brought together in one annual Budget statement.
The advantages of the new system are clear. Ensuring that tax and spending decisions are taken at the same time will allow better control over Government borrowing. Indeed, that is the main purpose of the change. With tax, spending and borrowing decisions presented in a single statement, the relationship between them will be much easier to understand. However, for now, our existing, and, to me, rather antiquated, procedures remain in place. I shall therefore concentrate today largely on the tax side of the accounts. My Budget should nonetheless be considered alongside the autumn statement that I delivered just four months ago.
In that statement, I set a firm limit on public sector wage increases. This was essential and we shall stick to it. And I established tight overall spending ceilings for the next three years. But I also gave priority to programmes that would help to promote growth and the long-term performance of the economy. In this way, the autumn statement played a key role in putting Britain on course for recovery.
My Budget today is designed to ensure that this recovery will be sustained. Above all, this Budget has two objectives: first, to support the recovery in the year ahead; and secondly, to set out a clear medium-term strategy for bringing the borrowing requirement back towards balance. The "Financial Statement and Budget Report," with a number of press releases filling out the details of my proposals, will be available from the Vote Office as soon as I have sat down.

WORLD ECONOMIC BACKGROUND

It is impossible to review the short-term prospects for the British economy without first considering what is happening in the world outside. Many people talk as if Britain's economic problems were unique, as if we can somehow insulate ourselves from the economic tides that sweep across the world. The truth, of course, is quite different. As ours is an open economy which exports a third of its output, developments abroad have a profound impact on Britain.

The one ray of light on the world scene has been the recovery in north America, and particularly in the United States. The United States economy grew by over 2 per cent. last year, with growth in the final quarter revised up

to an annual rate of 4¾per cent.; but the success of the United States stands in marked contrast to developments elsewhere.

Industrial production has been falling in many of the world's largest economies—over the last year it has fallen 2 per cent. in Italy; by 2½ per cent. in France; by 6½ per cent. in Germany; and by 7 per cent. in Japan. By contrast, in Britain, industrial production has actually risen, and the recent indicators of GDP confirm this gloomy world picture. Even Japan has now been visited by the prospect of recession, with gross domestic product declining by ¾ per cent. in the second half of 1992. France and Italy have also had to cope with falling output. And Germany, still struggling with the costs of reunification, has now suffered three successive quarters of declining GDP.

It was against this background that my right hon. Friend the Prime Minister and I secured agreement at the Edinburgh Council last December to a European growth initiative. This was closely modelled on my own autumn statement, and was designed to deal with the most serious problem facing the European Community—and the seemingly inexorable rise in unemployment across the continent.

Last year, unemployment in the Community rose by 1¼ million, and it is projected to rise further this year, to some 11 per cent. of the work force. France, like Britain, has 3 million unemployed; in Ireland and Spain more than one in six are out of work. Even in west Germany, unemployment is rising once again.

To a large extent, this pattern reflects the impact of recession, but, particularly in the European Community, the recent rise in unemployment comes on top of a relentless upward trend. In the Community as a whole, unemployment rose in every single year from 1973 to 1985; and although it fell back in the boom of the late 1980s, it has stayed at well over twice the level of 20 years ago.

Unemployment in Europe is much higher than in many other parts of the world; and it cannot be reduced simply by stimulating demand. A deep-seated problem needs more fundamental solutions. It requires more flexible markets, not just for labour but also for goods and services, and it requires support given by Governments to be directed less at propping up declining industries and more at helping the unemployed to rejoin the work force.

Above all, if we are to secure a lasting reduction in unemployment over the years ahead, we must continue to resist the imposition of job-destroying measures emanating from Brussels.

The high-cost economies of the European Community cannot insulate themselves from the world outside—from the more flexible economies of the Pacific rim and north America. Nothing would do more damage to job prospects, not just in Britain but across Europe, than the imposition of further tax or regulatory burdens on employers. That is why this Government will never sign the social chapter.

UNITED KINGDOM ECONOMY

While activity has been falling in many parts of the world, GDP in Britain rose slightly in the second half of last year. With interest rates down by four percentage points in just six months, Britain enters the year ahead in a more favourable position than most of our major competitors. That is confirmed by the European Commission, which expects Britain to be the fastest growing of all the major European economies both this year and next.

The substantial interest rate cuts I have made provide a solid foundation for recovery this year, and they come alongside the measures in my autumn statement to revive business confidence. We are already beginning to see their effects.

Lower interest rates have contributed to a pick-up in the growth of narrow money, while retail sales have been on a steady upward trend for almost a year. The abolition of car tax has prompted a surge in activity in the motor trade, right at the heart of British manufacturing. New car registrations were nearly 16 per cent. higher in the latest three months than a year earlier.

By the end of this month, the additional money that I provided in the autumn statement will have taken about 20,000 properties off the housing market. Although house prices remain weak, building society commitments and advances are stronger, and both house builders and estate agents are now reporting increased activity.

The extra support that I announced for British exporters will reinforce the competitiveness of our companies trading overseas, while exports in the last three months of 1992 were already at record levels; and the temporary increase that I announced in capital allowances will provide a continuing boost to business investment over the next six months. According to the CBI, manufacturers are more optimistic now than at any time for almost five years.

The recovery we have seen in confidence rests, above all, on one crucial foundation—the dramatic progress that we have made in getting inflation down. There has been much debate about Britain's experience with the ERM. Today I wish to make just two observations. First, it was absolutely vital to get inflation in this country down. The two years that we spent in the ERM were tough, but the war against inflation was one we had to fight, and one we had to win. Secondly, once sterling left the ERM, and with inflation sharply down, we were right to take the opportunity that that gave us to relax policy and get interest rates down.

Inflation is now at its lowest level for over 25 years. The rapid fall in the headline rate is, of course, partly the result of the reduction in mortgage rates; but even more significant is the fall in the underlying rate. That is down in the last year from 5½ per cent. to 3¼ per cent. Except for a few months in 1986, after the collapse in the oil price, underlying inflation has not been this low since February 1968.

SHORT TERM PROSPECTS

In my Mansion House speech, I announced the establishment of the panel of independent forecasters. My intention in doing so was to demonstrate more clearly that the judgments the Government have to make are not based on one single forecast.

I have now received the panel's first report, and I am most grateful to it for its contribution. The panel recognises that the substantial relaxation of monetary policy has greatly improved the prospects for recovery in 1993. Its forecasts for growth this year vary between ¼ and 2 per cent., with an average of just over 1 per cent.

The Treasury's forecast is very similar. Broadly in line with the average of the panel's forecasts, we expect GDP to grow by 1¼ per cent. this year, with the recovery gathering pace through the year. Growth in the year to the second half of 1993 might reach 1¾ per cent., rising to 3 per cent. in the first half of 1994.

However, as the panel stresses, uncertainties remain. It is possible that growth this year may exceed the 1¼ per cent. forecast that I have made, but there are significant downside risks, too. It is very difficult to be sure when consumers will feel that their finances are sound enough to support a stronger growth of spending, and there are, as I have said, considerable doubts about the prospects for our major export markets.

This will inevitably affect the prospects for the current account. The deficit in 1992 was about £12 billion, and as the economy recovers and the unfavourable short-term effects of the fall in the exchange rate feed through, I expect the deficit to widen this year to £17½ billion. But the measures that I shall be putting in place today should help to strengthen our trade position over the years ahead; and I expect the deficit in the meantime to be readily financeable.

THE MEDIUM TERM

The key to an improved trade performance lies in the competitiveness of our products, and the signs are encouraging. Earnings are now growing more slowly than at any time for 25 years. Labour productivity has been rising rapidly; and while unit wage costs in manufacturing have been rising in Japan and Germany, here they showed no increase at all during 1992. British business now has a great opportunity to expand into overseas markets and to replace imports at home; but costs must he kept under firm control.

The Government's task is to provide a clear and predictable framework for policy—to ensure that business has the freedom and the support it needs to get on with the job. Our strategy for sustained growth rests on three key principles: first, that growth comes from the private sector, not from Whitehall; secondly, that a continuing commitment to low inflation is vital if competitiveness is to be maintained; and thirdly, that the only way to increase the country's long-term growth rate is by improving the supply side performance of the economy.

SUPPLY SIDE POLICY

Supply side improvements are seldom the stuff of headlines, but the policies that this Government have pursued have begun to improve the way that markets work. We have transferred to private ownership some two thirds of the state sector we inherited; and our labour market reforms have given back to management the power to manage, so that last year the number of days lost to strikes was the lowest for a century.

But we still have a long agenda of unfinished business. In my autumn statement, I set out proposals to increase


the role of the private sector in modernising Britain's infrastructure. I also announced additional resources to underpin the education reforms that we have set in train.

The wealth of a nation depends largely upon the skills of its people; and nothing could be more important for the long-term performance of the British economy than the steady improvement in education and skills that this Government are determined to bring about.

INFLATION AND MONETARY POLICY

However, if long-term improvements in economic performance are determined largely by the supply side, we have seen all too often in the past 20 years how short-term prospects can be blown off course by inflation. I am absolutely determined that this should not happen again.

The Government's objective is to keep the underlying rate of retail price inflation within the range of 1 to 4 per cent.; and to bring it down to the lower half of that range by the end of this Parliament. I expect underlying inflation to be 3¾ per cent. at the end of this year, close to the top of its target range, but inflation should fall further over the medium term. Monetary policy is set to meet that objective.

The detailed framework for monetary policy was set out in my letter to the Treasury and Civil Service Select Committee last autumn; and since then, I have introduced two further developments to demonstrate our determination to conduct monetary policy in a way that will deliver our inflation target. We now publish a monthly monetary report which shows the information that guides our decisions. I have also asked the Bank of England to provide regular reports on our progress towards meeting our inflation objective.

Interest rate decisions are based on a continuing assessment of monetary conditions, measured principally by the growth of narrow and broad money, and movements in the exchange rate and asset prices. Alongside the target for inflation, I am setting monitoring ranges for both the narrow and broad measures of the money supply; for the period of this Parliament the ranges are 0 to 4 per cent. for M0 and 3 to 9 per cent. for M4.

In judging the prospects for inflation, I have to weigh the evidence from all the indicators, taken together. If any one is out of line, it is particularly important to assess its significance against the performance of the others.

Following the recent substantial reduction in interest rates, M0 growth may be above its monitoring range in the period ahead, but, on the basis of the indicators taken together, I believe that interest rates at their current level are consistent with the achievement of the Government's inflation objectives. At the lowest level in the European Community, they are also fully consistent with the prospects for recovery this year.

FUNDING

I turn now to funding, a subject of peculiar fascination for many City commentators and of particular interest to a number of my right hon. and hon. Friends. The Government's full fund policy ensures that their borrowing does not add to inflationary pressures. I am clear that this policy remains appropriate, but, from time to time, it has been right to reconsider its detailed application.

I have therefore decided that transactions by banks and building societies in gilts will, from now on, be included in

the funding definition. In periods when banks and building societies reduce their holdings of gilts, extra sales to other sectors will be needed, but in current conditions the change I am making will help to ease the pressures on liquidity and avoid complicating money market management. If it also leads to some strengthening in the growth of M4, that would be no bad thing.

In the year ahead, sales of gilts will, as usual, form the bedrock of the funding programme, but national savings will again make an important contribution.

FISCAL POLICY

In controlling inflation, monetary policy must of course be supported by a sustainable fiscal policy. I expect a PSBR in the current financial year of £35 billion—slightly lower than projected at the time of my autumn statement, but, because unemployment tends to increase for a while, even after growth has resumed, and because some taxes, particularly corporation tax, are collected a year in arrears, I expect borrowing next year to rise further. The PSBR for 1993–94 has therefore been set at £50 billion, some 8 per cent. of GDP.

Unless action is taken, large deficits will continue over the medium term. The PSBR could still be around 6 per cent. of GNP in 1996–97, the last year of this Parliament. I do not believe that borrowing on that scale is acceptable, and I shall be announcing measures today to reduce it progressively over the years ahead.

In the early 1980s, we took steps to bring the public finances back under control. We turned a PSBR of over 5 per cent. of GDP into a surplus of 3 per cent., and we nearly halved the ratio of public sector debt to GDP. We did not shrink from making the necessary changes then and I shall not shrink from making them today.

The rise in the PSBR since 1989–90 is largely due to the recession, and, because of the reduction in the national debt in the 1980s, I have been able to allow the so-called "automatic stabilisers"—the increases in public spending and the reduction in tax receipts that directly reflect the weakness of the economy—to operate fully. It was right, I believe, to do this to maintain the level of demand during the recession. However, just as a business cannot go on year after year ignoring a fall in cash flow caused by a downturn in the economy, so too the Government cannot keep on running up debt in the hope that recovery will solve our problems. Even if the higher debt we now face was largely caused by the recession, the extra borrowing still has to be financed. As debt mounts up, so does the debt interest. In this way, what might have started off as a cyclical deficit could soon become a structural deficit unless action is taken to bring borrowing down.

All around the world, we see countries striving to reduce their fiscal deficits or suffering from their failure to do so sooner. President Clinton's programme shows that the need for fiscal discipline is now widely understood. The deficit which the Italians are now having to deal with is a salutary warning to those who think that a problem postponed is a problem solved. Those who argue that there is no need for action should confront the consequences of such a course—the consequences not just for the public finances but also for the level of interest rates.

For all these reasons, I believe that the greatest threat to sustained recovery in Britain would come not from a lack of demand, but from excessive Government borrowing over the medium term. We have to address that problem now.

Action to bring the fiscal deficit down clearly has to start with the amount that the Government spend. The new control arrangements that I put in place last year were an important first stage, and we now have firm ceilings for expenditure over the next three years that will keep the growth of spending below that of the economy as a whole.

But proper control of public expenditure cannot be achieved simply by setting targets. It requires a continuous examination of each and every Department and of all the functions of Government. What was once a desirable role for the public sector may no longer be appropriate today. That is why the fundamental reviews of public spending are so important. Those reviews will inevitably take time, so I have also had to look at the revenue side of the accounts.

BUDGET JUDGMENT

In doing so I have had to balance two key objectives: first, the essential task of helping recovery; secondly, the need to tackle the deficit so that the recovery will be sustained. I believe that my proposals today strike that right balance. In the year ahead, 1993–94, their effect will be broadly neutral, thus allowing the recovery to take hold, and I will be announcing later some measures to improve that prospect by helping business and the unemployed.

However, for subsequent years, as the economy strengthens, my proposals are designed to build in a wedge of steadily rising revenue. Overall, they will raise revenue by £6½ billion in 1994–95 and by £10½ billion in 1995–96—the equivalent of 1½ per cent. of GDP.

In setting out the Government's plans for raising revenue, good intentions are not enough. I intend that, as far as possible, these proposals should be legislated for this year, in this year's Finance Bill. Taken together with the tight public spending plans that I announced in the autumn statement, they should ensure that the PSBR returns towards balance over the medium term; but if further action proves necessary, I shall not hesitate to take it.

REVENUE MEASURES 1993–94

TAXATION OBJECTIVES

The proposals I shall be announcing today are part of a continuing programme of tax reform—a programme which has strengthened work incentives and improved the efficiency of the economy. In deciding where to look for additional revenue, I have been guided by a number of principles: first, that, where possible, money should be raised in a way that will not damage the working of the economy; secondly, that in general this means that reducing the value of allowances and broadening the tax base is preferable to increasing marginal tax rates; thirdly, that taxation should support social, health and environmental objectives.

I will deal with my revenue-raising proposals in two parts. I will start with my proposals for the year ahead, 1993–94; I will then describe the measures that I propose for the two years thereafter. For the year immediately ahead, as I have said, my proposals are very broadly neutral. The objective has been to strengthen the recovery

by giving help to business, but, in order to pay for that, I have had to raise revenue from other sectors of the economy.

ALLOWANCES

The first is income tax. With inflation down to levels not seen for a generation, I propose for the year ahead to freeze the personal allowances, the married couple's and related allowances, the basic rate limit and the income limit for age-related allowances. The threshold for inheritance tax, the capital gains tax exempt amount and the earnings limits for tax relief on pension contributions will also remain unchanged. This will save some £670 million this year.

EXCISE DUTIES

The second is excise duties. The removal of customs controls at the channel has been welcomed by many thousands of travellers who are now seeing the benefits of the single market at first hand. It has also brought many benefits to British business, including some 10 million fewer forms this year. But there is a natural concern as well about the impact of an increase in cross-border shopping, and the effect that it might have on British businesses, particularly in the south-east.

In considering what changes to make to excise duties, I have had to balance that against the need to raise revenue. I have therefore decided to raise the duties on most alcoholic drinks by only 5 per cent. this year. From 6 pm today, the total tax on a pint of beer will rise by about 1½p, and that on a bottle of wine by about 5½p.

I have also received many representations this year about the taxation of spirits, and, in particular, the taxation of whisky. This is one of Britain's most successful exporting industries. I promised in my Budget speech last year to resist proposals from Brussels to introduce tax rules that would hit whisky sales in Europe; but, having succeeded in that, it is important that our own tax regime does not further disadvantage the industry. I have therefore decided to make no change in the duty on spirits this year. I am sure that that will be welcomed by hon. Members on both sides of the House, and especially in Scotland.

I turn next to tobacco. Last July, my right hon. Friend the Secretary of State for Health published a White Paper containing our commitment to maintain the real value of the taxation on tobacco products, but again I have also had to take into account the impact of the single market. I propose, therefore, to increase the overall burden of duty by some 6½ per cent, four percentage points above the rate of inflation. This will add 10p to a typical pack of 20 cigarettes—and, I regret to say, some 4½p to a pack of five small cigars. But I also propose to make this increase in a different way from usual.

As the House will recall, cigarettes are subject to two different excise duties: a "specific" duty, which is a flat-rate charge per cigarette, and an "ad valorem" duty, on their price. Given that the health objective is to tax the harm that cigarettes do, it is better to tax the cigarettes themselves than to tax their price. I therefore propose to increase the specific duty on cigarettes by 10 per cent., while cutting the ad valorem duty from 21 per cent. to 20 per cent. This will mean a proportionately bigger tax increase for cheap cigarettes, many of which are imported.


I also propose this year to increase the duty on most gaming machines by 20 per cent. Taken together, those changes will raise £290 million in 1993–94 and £365 million in 1994–95.

I turn now to motoring taxes, where I propose to combine raising revenue with tax reforms. When I abolished car tax in my autumn statement, I said that I would recoup the cost from other motoring taxes. I therefore propose to raise all fuel duties by 10 per cent. from 6 pm today, putting 12p on a gallon of unleaded petrol and 15p on a gallon of four-star. From midnight tonight, vehicle excise duty for cars—the tax disc—will also rise, by £15, to £125.

Taken together with the abolition of car tax, those measures will raise a net £400 million in 1993–94. The overall impact will be to shift the tax burden from car buyers to car users; and to help both the environment and the industry. Together with the increases that I have announced on alcohol and tobacco duties, it will add a quarter of a percentage point to the RPI in April, compared with indexation.

FUEL SCALES

Alongside the increase in fuel duties, I propose to increase by 20 per cent. the scale charges for free fuel supplied to company car drivers for private use. I also propose to abolish the 50 per cent. discount currently available to drivers doing more than 18,000 business miles a year. Employees can, of course, avoid this tax altogether by paying for the full cost of all fuel provided for private journeys themselves. The environmental impact of my proposals on fuel duties will be strengthened by reducing the number of motorists who use fuel at no direct cost to themselves. This measure will raise £65 million in the year ahead and £70 million in 1994–95.

COMPANY CARS AND VANS

I turn next to the tax treatment of company cars. From its introduction in 1976 until 1988, the income tax charge on company cars significantly under-estimated their true value. Since then, charges have been steadily raised to more appropriate levels. I propose this year to complete that process, by bringing the car scales up to a level which fully reflects the true value of the benefit of a company car. That requires an increase in car scales of 8 per cent., bringing additional revenue of £100 million in 1993–94.

However, as I said last year, the structure of the current regime remains unsatisfactory. In most cases, the value put on the benefit, and the tax that is payable, are determined not by the price of the car, but by the size of the engine. That might have mattered less when the scale charges were very low, but it now gives rise to serious distortions.

Following consultation with the industry, I propose from 1994–95 to replace the current car scales with a simple system based on the price of a car. The annual benefit of a company car will be valued for income tax purposes at a fixed percentage of the manufacturer's list price. To ensure that the reform is revenue-neutral, I propose to set that percentage at 35 per cent. Company car users will then pay income tax at their marginal rate on that amount.

However, I do not believe that it would be right to apply the full rigour of the charge to those who use the company car largely for business purposes. I therefore propose that there should be a discount of one third for

those company car users who drive more than 2,500 miles a year on business, and a discount of two thirds for those who do more than 18,000 business miles. In future, the tax on company cars will rise or fall automatically with the price of those cars. It follows that there will no longer be any need to set the tax charge each year in the Budget.

My reform will reduce tax distortions in the car market and enable manufacturers and fleet managers to plan production and purchasing in a more rational and stable system. For these reasons, I believe that it will be welcomed. I also propose to replace the existing complex arrangements for taxing employees' private use of company vans with a simple scale charge, covering both the van and any fuel provided, set at the modest level of £500. This will raise £10 million in the year ahead and £35 million in 1994–95.

ANTI-AVOIDANCE

In addition, I intend to close a number of loopholes which have been exploited by people to avoid tax. First, from midnight last night I propose to exclude from the business expansion scheme all schemes which involve the provision of loans to BES investors. The BES was set up to encourage investment in small business—not to provide highly subsidised loans for top-rate taxpayers. Secondly, I intend to end the practice whereby group companies buy up other companies with capital losses simply in order to set those losses against their own capital gains. Thirdly, I intend to restrict the situations in which changes in company ownership can create scope to avoid advance corporation tax. Finally, I propose to tighten the rules for foreign companies under United Kingdom control.

Full details of these and other measures are provided in a series of Inland Revenue press notices being issued today. The revenue is not insignificant. Taken together, the measures should raise some £70 million in the first year, rising to over £460 million in the following year.

TAURUS

Before leaving my proposals for 1993–94, I wish to make clear the position on stamp duties on securities and property other than land and buildings. Following the decision by the Stock Exchange last week to abandon TAURUS, stamp duty will remain in place at least for 1993–94, raising £1 billion during the coming year. I will review the position further in the light of the conclusions of the securities settlement task force set up by the Bank of England.

The measures that I have proposed so far will raise £2·4 billion in 1993–94, not including stamp duty. Of this, £750 million is required to finance the abolition of car tax. I will be using a large part of the rest to reduce taxes on business.

REVENUE MEASURES 1994–95 AND BEYOND

Before I turn to business taxes, I intend to set out my tax proposals for 1994–95 and the years thereafter. As I have already explained, these tax proposals will build up over the years, creating a wedge of increasing revenue, which, as far as possible, will be legislated for in the coming financial year.

NATIONAL INSURANCE CONTRIBUTIONS

In my autumn statement, I took some tough decisions on current spending to maintain capital programmes, but, to protect the poorest and most vulnerable members of society, we also decided to uprate social security benefits in full. That decision was warmly welcomed on all sides of the House. However, had no further action been taken, the effect of that decision, combined with the rise in unemployment, would have been to push the national insurance fund into deficit. To prevent this, I introduced a new Treasury grant, and legislation to implement this has been taken through the House.

This makes sense at a time when ensuring economic recovery is our priority, but it is clearly not a fair or reasonable basis for financing the national insurance fund over the medium term. A Treasury grant is paid for by the general body of taxpayers, including millions of pensioners who have already made a full contribution to the fund throughout their working lives. Accordingly, my right hon. Friend the Secretary of State for Social Security and I propose to place the finances of the national insurance fund on a firmer footing.

I do not propose to increase national insurance contributions in the coming year. However, from April 1994 my right hon. Friend and I propose to increase the class 1 main rate of employee national insurance contributions by 1 per cent., to 10 per cent., and the class 4 rate for the self-employed by 1 per cent., to 7·3 per cent. The arrangements for employees earning below the lower earnings limit and the self-employed with profits below the lower profits limit will be unchanged by these measures. The necessary legislation will be brought before the House in the coming year.

Taken together, these increases will raise about £1·8 billion in 1994–95 and £2·2 billion in a full year.

However, that will still leave a deficit in the national insurance fund of £2·8 billion in 1994–95 and a similar sum the following year. National insurance contributions are, of course, paid not just by employees and the self-employed, but also by employers; and when a deficit of this size emerges in the fund, it is natural to look to all contributors to make up the balance. The remaining deficit is roughly equivalent to an increase in the employer national insurance contribution rate of 1·2 per cent. from 10·4 per cent. to 11·6 per cent. However, having reflected carefully, I do not believe that it would be appropriate to increase the burden on employers. I therefore propose to retain a smaller Treasury grant to make up the continuing shortfall in the fund.

NORTH SEA FISCAL REGIME

One of the main objectives of this Government's tax reforms has been to eliminate tax rules which distort investment decisions. This was the driving force, for example, behind the far-reaching reform of the corporation tax system in 1984. Today I wish to carry this principle through into another important sector of the economy—the North sea, and in particular petroleum revenue tax, or PRT.

When PRT was introduced in 1975, the North sea oil sector looked very different—oil prices were very high and the typical oilfield was relatively large. The purpose of the new tax was to ensure that the Exchequer got its fair share

of the large profits to be made in the North sea, while companies were left with a reasonable return on their investments.

However, as the North sea has developed, the PRT regime has come to look increasingly anachronistic. As profits in many existing fields attract a marginal tax rate of over 83 per cent. there is little incentive for companies to keep costs under control or for additional investment in existing fields. Moreover, as a result of the uniquely generous allowances that are available, the Exchequer is no longer getting a fair return. In 1991–92, the PRT regime actually cost the Exchequer £200 million.

As many in the oil industry recognise, this is neither reasonable nor sustainable. The North sea tax regime has to be placed on a clear long-term footing, so today I intend to set out a major reform which will raise revenue in the medium term and give the oil industry a stable framework to plan ahead.

I propose from 1 July this year to reduce the PRT rate on existing fields from 75 per cent. to 50 per cent., and for new fields I propose with effect from today to abolish PRT entirely.

It follows that, for new fields, I also intend to scrap all the allowances that go with the existing PRT system, including, for example, relief for exploration and appraisal expenditure that can be set against PRT on existing fields: but contracts entered into before today for exploration and appraisal will continue to get relief against PRT on existing fields for the next two years. Allowances that can be claimed within existing fields will remain essentially unchanged.

This reform will greatly simplify the tax regime for new fields, disapplying at a stroke some 300 pages of complex legislation; and it means that the only tax on new oil fields in the North sea will be corporation tax—at 33 per cent., the lowest rate of business tax in the industrialised world. Britain will have a competitive tax regime which strikes a reasonable balance between the interests of the industry and those of the nation as a whole.

The paradox of this reform is that, despite the abolition of PRT for new fields, and the reduced rate for existing fields, after 1993–94 it will actually raise revenue for the Exchequer. I expect the yield in 1994–95 to be some £300 million and in the following year to be some £400 million.

RELOCATION EXPENSES

I turn now to another area where reform is long overdue—the tax treatment of job-related relocation expenses.

When a company asks its employees to move house, it may offer help with relocation expenses. Usually, that involves paying for the cost of the removals, but sometimes, if the move is to a more expensive area, the employer will also pay allowances towards the employee's higher living costs.

For the past 40 years, we have allowed employees to receive most of this help tax-free, provided the employee has sold his existing home—a condition which has been the subject of much criticism. That means that someone whose employer gives them as much as £25,000 might pay no tax on it at all. On the other hand, people who decide to move to find work and pay their own costs get no help whatsoever from the tax system.

I see a case for some measure of relief where employers help meet employees' removal expenses, but it is difficult,


in my opinion, to find a convincing rationale for a system of tax relief whose effect is to give the biggest subsidy to those moving to the highest-cost areas. With these reliefs expected to cost the Exchequer no less than the staggering sum of £800 million this year, I believe that the time has come for reform.

I am therefore asking the Inland Revenue to withdraw the present extra-statutory concession which helps people moving to a more expensive area, and I propose to restrict relief on removal expenses to payments of up to £8,000 for people whose employers require them to relocate after 6 April this year. Under the new system, the existing home need no longer be sold to qualify for relief.

Although these changes come into effect immediately, they will not start to raise revenue until the year after—about £200 million in both 1994–95 and 1995–96.

MORTGAGE INTEREST RELIEF

I turn now to mortgage interest relief. The rapid expansion of home ownership is one of this Government's most enduring achievements, and I have no plans to change the existing ceiling for mortgage interest relief of £;30,000, but in the last few Budgets we have taken steps to improve the focus of mortgage interest relief and to contain its costs—most recently in my 1991 Budget—by restricting the relief to the basic rate.

Even so, mortgage interest relief is expected to cost the Exchequer £4·3 billion next year alone. I propose, therefore, to reduce the rate at which relief is given from 25 per cent. to 20 per cent., but I propose to defer the implementation of this change until April 1994. In all, this change will yield £900 million in 1994–95 and £960 million in the following year.

At the current mortgage rates, no borrower will be more than £10 a month worse off from the reduced rate of relief, and for many with mortgages below £30,000 the increase in payments will be even smaller. Moreover, it is the level of interest rates, not the amount of tax relief, that is the most important determinant of the cost of a mortgage. Because interest rates have fallen so far since October 1990, payments on the average mortgage have been cut by over £150 a month, so the cost of the change I am proposing is equal to just a fraction of the benefit mortgage payers have already received from lower mortgage interest rates.

I know that there are some elderly people with life annuity home income plans which allow them to draw down some of the savings that they have invested in their houses. Such schemes will continue to attract relief at 25 per cent.

I am fully aware that, despite some encouraging signs of increasing activity, the housing market remains fragile. That is why the changes I have described will not come into effect until next year; and it is also why I have one further proposal which will affect people buying houses. Whereas my proposals on mortgage interest relief do not apply until April 1994, this measure comes into effect immediately. I propose to double the stamp duty threshold to £60,000 for documents executed from today and not stamped before 23 March, when the required Budget resolution has been considered by the House.

This means that the cost of buying homes priced at between £30,000 and £60,000 will be reduced by up to £600. From today, the number of transactions in the housing market liable to stamp duty will be halved. This

will be of particular benefit to first-time buyers, who tend to buy less expensive homes. With mortgage interest rates at their lowest level for decades, this reduction in stamp duty should provide a further stimulus to the housing market. The change will cost £220 million in 1993–94 and about £270 million in the following year.

Last year, I announced a significant change in the treatment of the married couple's allowance, giving couples greater flexibility in allocating it between them. Today, I have a further important change to propose.

At present the married couple's allowance reduces a taxpayer's liability at his or her marginal rate. A taxpayer on the 20 per cent. lower rate benefits by £344, but a higher rate taxpayer gets £688—twice as much. There is no good reason why an allowance intended to recognise the responsibilities of marriage should give least to those on low incomes and most to those right at the top of the income scale.

From 6 April 1994, therefore, I propose to restrict relief for the married couple's allowance to the lower rate of 20 per cent. It will then be worth the same amount to taxpayers at all levels of income. The allowances which are linked to the married couple's allowance for those aged under 65 will be similarly restricted.

Because of the higher level of MCA to which they are entitled, this change will bear harder on elderly married couples, so, also from 1994–95, I propose to increase by £200 the married couple's allowance for those aged 65 and over. This will ensure that pensioners paying tax at the basic rate are affected by the change in the same way as any other basic rate taxpayer, and some elderly married couples in the lower rate band will actually gain slightly.

As I have said, these changes will not come into effect until 1994–95. They will raise about £900 million in 1994–95, and £1·2 in 1995–96.

GREEN MEASURES

In recent years, there has been much debate on the subject of global warming and the role that tax measures can play in combating it. This has led the European Commission to propose a Communitywide carbon tax. There may indeed be a case for further co-ordinated international action on global warming, but I remain unpersuaded of the need for a new European Community tax. Tax policy should continue to be decided here in this House, not in Brussels.

Individual countries should, of course, take their own measures to give people the right signals to encourage the efficient use of energy. Today, I shall propose measures designed to do just that, and to raise revenue at the same time.

Last June, my right hon. Friend the Prime Minister signed the United Nations convention on climate change at Rio. This was a milestone in international efforts to halt global warming.

When Britain and other countries have ratified the convention, the Government will be committed to bringing forward measures aimed at returning greenhouse gas emissions from this country to 1990 levels by the year 2000. My right hon. Friend the Secretary of State for the Environment published last December a consultation paper which set out the various options.

The largest contribution to the growth in United Kingdom carbon dioxide emissions in the coming years is expected to come from the transport sector. I therefore


propose to make clear today the Government's long-term intention on road fuel duty. We intend to raise road fuel duties on average by at least 3 per cent. a year in real terms in future Budgets, in addition to the increase I have already announced for this year.

In deciding the level of duty to be levied in any particular Budget, we will, of course, take full account of conditions at the time—including, if charges for motorways and urban roads are introduced, the overall level of taxes and charges which road users are paying. However, my announcement today will help manufacturers and consumers to plan ahead. It should provide a strong incentive for motorists to buy more fuel-efficient vehicles, and it will raise at least a further £520 million in 1994–95 and £950 million in 1995–96.

However, in order to meet the commitment that we entered into at Rio, action will be required not just in the transport sector, but across the whole economy, and in deciding how best to meet our carbon emissions target, we will need to ensure that the right incentives are in place throughout the economy—encouraging people to consume less and conserve more. Above all, it is crucial to avoid taking measures that will have a disproportionate impact on the competitiveness of British industry.

Against this background, I have one further measure to propose that will not only encourage greater energy efficiency in every household in the country, but will also raise a considerable amount of revenue for the Exchequer over the years ahead.

Fuel and energy supplies to industry pay VAT in Britain. Those to the home do not. In this respect, we are unique in the European Community. I therefore propose, over the next two years, to end the zero rate of VAT on domestic fuel and power. Again, this change will not come into effect immediately, but in 1994. VAT will be charged at 8 per cent. from 1 April 1994 and at 17½ per cent. from 1 April 1995.

This measure will raise some £950 million in 1994–95, £2·3 billion in 1995–96 and around £3 billion a year thereafter. For the first time, the rate of VAT on domestic fuel and power will be the same as that charged on goods like loft insulation material, which improve energy efficiency. This will bring to an end the current anomaly, which makes nonsense of any attempt to use the tax system to improve the environment.—[Interruption.]

Mr. Deputy Speaker: Order. The House should listen to the Chancellor.

Mr. Lamont: My intention is to legislate for this proposal this year.
Social security benefits will, of course, rise automatically to reflect the price effect of this change, but I recognise that this will cause particular problems for those on low incomes. My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year.
Taken together with the measures which have already been announced, these tax proposals take Britain two thirds of the way to meeting the Rio target, and they will do so in a way that does the least possible damage to the competitiveness of British industry. I am confident that the remaining gap can be filled through sensible energy-saving measures, as and when the convention is ratified by our major industrial competitors.
The measures I have announced so far will raise substantial revenue in 1994–95 and beyond. I turn now to my measures for business.

DEREGULATION

SELF-ASSESSMENT AND SIMPLIFICATION

As the House is aware, the Government have embarked on a major drive to reduce the burden of regulation on industry. I will therefore start with three significant measures of deregulation, which should be of particular benefit to the self-employed and to small businesses generally. Self-assessment of income tax has operated successfully in many countries, including the United States, but none of my predecessors has found a way of introducing it here. For most people, that has not been a problem—the PAYE system already deals very simply with the tax affairs of some 16 million employees—but for the 8 million taxpayers who have to fill in a tax return each year, the current arrangements are very far from simple.

Following a detailed consultation exercise, I now propose to offer these people, including 4 million self-employed, the option of self-assessment on income tax. Legislation will be brought forward in next year's Finance Bill to implement the proposal from the earliest practicable date, which is 1996–97.

For those who choose to take it up, self-assessment should provide a significant reduction in bureaucracy and paperwork; and it will also bring out more clearly the link between public spending and the burden this places on the individual taxpayer. A more transparent tax system can only lead to more informed choices and debate; and I believe that self-assessment for a third of all taxpayers will contribute to that.

But for self-assessment to work, the system has to be simple enough for taxpayers themselves to be able to fill in their own returns. My second reform will achieve a significant simplification, particularly for the self-employed. One of the least attractive features of our present tax system is that it is simply too complicated for them to work out how much tax they owe: people setting up in business on their own are more or less forced to employ an accountant.

Since 1926, the self-employed, working under the so-called "preceding year" basis of assessment, have generally paid a tax bill based on profits they made up to two years previously. People with several different sources of income may be assessed on a number of different bases, with separate tax bills and payment dates for each. It would be difficult to invent a more complicated system for taxing the self-employed, even if one set out with that very intention.

Under my new proposals, people will have just one tax bill each year, covering all their income, and the self-employed will pay tax on the profits they make in the current year, not the preceding year. This should be a major simplification; and I am sure it will be warmly welcomed.

Taken together, these two measures amount to the most fundamental reform of income tax administration since the introduction of pay-as-you-earn in 1944.

STATUTORY AUDIT

My third announcement is of particular interest to smaller businesses.

At present, all businesses which are incorporated have to have their accounts audited. While it is clearly important that accounts should be reliable and indeed that the Inland Revenue and other users should have the assurance they need that the accounts have been drawn up properly, the current statutory audit requirement imposes a disproportionate cost on many small businesses. My right hon. Friend the President of the Board of Trade will therefore shortly be issuing a consultative document setting out options for reducing this burden, at least for the very smallest businesses that are incorporated. This would deliver significant savings and would represent a major step in cutting out red tape and bureaucracy.

BUSINESS TAXES

Reducing the Government's borrowing requirement will benefit business by ensuring that the recovery is sustained, but, as I said in my Mansion House speech last October, the Government are determined to keep our policies under continuous review to ensure that British business has the backing it needs to compete in world markets. This is particularly true of our tax policies.

Britain already has the lowest rate of tax on business profits in the industrialised world, and we have a personal tax system which makes it attractive for entrepreneurs and managers to live and work in Britain. We intend to see that continue.

Britain has had an outstanding record over recent years in attracting investment from overseas—indeed, we have attracted no less than a third of all foreign investment into the European Community over the last few years—but we cannot be complacent. With the advent of the single market, the competition in Europe to secure inward investment has become ever more intense. So my Budget sets out to ensure that our business tax regime retains its clear competitive edge.

SURPLUS ACT AND THE TAXATION OF DIVIDENDS

In discussions with business organisations over the last few months, one issue has come up again and again—the problem of surplus advance corporation tax, or ACT. Many believe that this feature of our tax system both penalises successful British-owned international companies and distorts investment decisions.

This issue has, of course, been with us for many years, and it has so far defied solution. Nonetheless, I made a commitment in my Budget last year to return to this subject, and I am pleased to be able to report to the House that I have now found a way forward.

I hope that the House will bear with me, as I am afraid that my proposals are complex, but they do attack the problem of surplus ACT, they are central to the strategy of this Budget, and they raise significant amounts of revenue.

At present, ACT is paid on dividends at 25 per cent. This funds a tax credit which covers the basic rate income tax bill of the shareholder, but, as its name implies, it is also an advance payment of the company's corporation tax bill.

In normal circumstances, the system works very well, but sometimes it does bring problems, particularly for companies which earn a large proportion of their profits overseas. These companies often end up paying an ACT bill on their dividends that is greater than their entire

United Kingdom corporation tax liability. The so-called "surplus ACT" that results cannot be claimed back, so in effect it becomes an extra tax on profits.

This can have damaging economic effects. For example, it gives some companies a strong incentive to move important activities, including research and development, abroad, leading to the loss of skills and jobs in this country. It cannot be right to distort the commercial decisions of British companies in this way or to give companies a positive incentive to move elsewhere in Europe; so today I am putting forward some proposals that will go a long way towards alleviating the problem.

First, I shall establish a special tax regime from 1994–95 to help foreign-owned international companies which are considering setting up their headquarters in the United Kingdom. This will make it more attractive for international companies to base their operations in Britain, and it will further promote London's position as Europe's leading financial centre.

Secondly, I am today issuing a consultation document proposing a scheme under which British companies may choose to class any dividend paid out of overseas profits as a "foreign income dividend". Unlike normal United Kingdom dividends, this will not carry any tax credit, and although ACT would initially be payable in the usual way, the company will be entitled to a refund if it gives rise to surplus ACT. Once fully operational, this scheme could reduce the build-up of surplus ACT by some £250 million a year.

Finally, I have one further proposal which will help not just companies with surplus ACT, but all dividend-paying companies; and it will do so in a way that will raise considerable revenue. I propose simply to reduce the rate of ACT in two stages, from 25 to 22½ per cent. in 1993–94 and then to 20 per cent. in 1994–95. This will give companies which pay dividends a cash flow benefit of about £2 billion over the next two years, and it will reduce the build-up of surplus ACT by about £300 million next year.

I also propose to reduce from 25 to 20 per cent. in 1993–94 the tax credit that shareholders get when they receive a dividend.

Those who are familiar with these issues—a select few, I fear—will know that tax credits affect two main groups of shareholders. Those with no tax liability, particularly pension funds, can claim a cash payment from the Inland Revenue for the tax credit, and higher rate taxpayers have to make up the difference between the 40 per cent. top rate of tax and the 25 per cent. tax credit they receive.

The reduction in the tax credit that I am proposing will therefore have two important effects. First, the payments that lower rate payers, non-taxpayers and particularly pension funds, get from the Inland Revenue will be reduced by five percentage points, saving the Exchequer no less than £1 billion a year. Secondly, higher rate payers will have to pay an extra 5 per cent of tax on the dividends they receive in order to discharge their liability to tax at the top rate of 40 per cent. This, in turn, will yield an extra £200 million a year.

Finally, in order to ensure that most ordinary shareholders are not affected by this change, I propose to reduce the rate of tax on dividends from the current basic rate of 25 to the lower rate of 20 per cent. The effect of this, combined with the change to the tax credits, is to leave basic rate taxpayers neither better off nor worse off than they are now.

Thus, these proposals achieve three objectives at the same time. They will give companies a £2 billion cash flow boost over the next two years, they will significantly reduce the problem of surplus ACT for the future, and they will raise £900 million extra revenue for the Exchequer from 1995–96 onwards.

There is, however, one group for whom I believe it would be desirable to ease the immediate effect of these changes. I therefore propose for charities to phase in the effect of the reduction in the tax credit over a four-year period. I also have some further measures for charities, to which I shall turn later.

EXPORT CREDIT

The House will be relieved to hear that my next measure is a little less opaque, but it is equally important for the long-term success of British manufacturing.

In the autumn statement, I announced a substantial increase in export credits to help British businesses win major contracts abroad, but the fact remains that export credit insurance has proved expensive for the taxpayer. For that reason, the Government have negotiated hard over the years to secure a reduction in the subsidies offered by other countries. Some progress has been made, and we shall continue in that effort, but in the meantime British firms, in my opinion, are sometimes at a competitive disadvantage in seeking business overseas. My right hon. Friend the President of the Board of Trade and I have therefore looked again at the whole range of ECGD services and have decided to make some important changes.

The first relates to premiums. Last year, premiums were cut on average by about 20 per cent., but there is scope to do more. We have therefore decided to make a further reduction of 7½ per cent. in the average level of ECGD premiums. This means that, while premiums for individual export markets will always differ, the average level of premiums paid by British exporters next year will be down to around the average paid by their G7 competitors.

The second is export credit cover. In the autumn statement, I increased the cover available to exporters by £200 million this year, and by a further £500 million for 1993–94. Over the next three years, my right hon. Friend and I propose that additional cover of £1·3 billion should be made available for those exporting into some of the fastest growing and most important markets around the world. Taken together with my autumn statement announcement, this means that the annual cover for these markets will have increased by more than 75 per cent. in just four years.

As a result, British firms will now be able to go into export markets with greater confidence that they can compete on a more equal basis with their overseas competitors. I am sure that they will seize the opportunities that are now available to them.

INSURANCE

Over the years, one of Britain's most successful exporting industries has been insurance, but for some years now the industry has argued that the tax reliefs available to some of their European counterparts put them at a competitive disadvantage. In fact, that is not the whole story; in other respects, our own tax system is very favourable. Nevertheless, having reviewed the position

again, I believe that there may indeed by a case for allowing tax relief on certain types of equalisation reserves covering occasional, exceptional losses.

However, if such reserves were to be allowable for tax, they would also have to be within the regulatory framework for the industry. This would be a major departure for both the tax and regulatory systems. A consultation document will be issued later this spring to consider the options.

LLOYD'S

I also propose to introduce a significant reform of the tax regime for Lloyd's. I propose to tax the gains on the disposal of assets which form the premiums funds of Lloyd's names in the same way as those of corporate insurers, and I intend to replace the current reserve arrangements with a better targeted reserve, which should enhance Lloyd's ability to deal with the particularly volatile type of risk which makes up most of its business.

My proposals will greatly simplify the taxation of Lloyd's. Lloyd's has certainly had a difficult time recently, but it remains vital if London is to retain its pre-eminent position in the world insurance market. Taken together, the two reforms I am proposing will cost the Exchequer nothing.

SMALL BUSINESS

The measures I have announced so far will be of help particularly to large businesses, but small firms play a crucial role in our economy. Small businesses do not follow the economy; they lead it. That has been demonstrated time and time again. In this Budget, I shall set out some further proposals which will help small businesses to lead the recovery once again.

LOAN GUARANTEE SCHEME

Following heavy losses in recent years, the banks are bound to be more cautious in their lending in future. Moreover, the fall in property prices has reduced the security for many of their loans. As the recovery progresses, small firms may therefore find that their prospects for expansion are increasingly threatened by a shortage of bank finance. My first proposal is directed precisely at that problem.

The Government's loan guarantee scheme helps entrepreneurs who have viable projects but who do not have the track record or loan security to attract sufficient finance on their own. It enables them to borrow with a Government guarantee, usually for 70 per cent. of the value of the loan, in return for paying a premium of 2½ per cent. on the guaranteed part of the loan.

In Germany and the United States, a large proportion of lending to small businesses is done at fixed rates of interest. By contrast, in Britain, most borrowing is linked to the level of base rates. I have long believed that many small businesses would benefit from making more use of fixed-rate finance, which would give them more stability and would enable them to plan ahead.

I propose therefore to make a substantial reduction in the loan guarantee scheme premium for guarantees on fixed-rate lending. This will fall to ½ per cent. and will, I hope, encourage more fixed-rate lending. I also intend to reduce the premium on other variable rate loans to 1½per


cent. The premiums will henceforth apply to the whole loan, not just the guaranteed portion. This change should take effect in the next month or so.

I also propose that the limit on the size of loan allowed to such businesses should be raised from £100,000 to £250,000, and the proportion of the loan guaranteed increased from 70 per cent. to 85 per cent. I am sure that those proposals will be warmly welcomed by small businesses. My right hon. Friend the President of the Board of Trade and I will be taking this forward urgently with the banks.

CGT REFORM

My second measure relates specifically to entrepreneurs who have built up successful businesses and now wish to sell them in order to start up a new one.

The current capital gains tax regime provides generous annual exemptions to those who make regular capital gains from trading in shares, but it is much less generous to the entrepreneur. Typically, he sells shares in his own company only once, so has only one year's annual exemption to set against gains built up by hard work over a lifetime. Thus, for every £100 taken out of the old company at the margin, he has only £60 to invest in a new one. It is hardly surprising that entrepreneurs complain that they are locked in by the CGT regime, and prevented from investing their talents elsewhere.

For this reason, I propose in future to defer the payment of CGT for any entrepreneur whose gains from the sale of his own company are reinvested in another qualifying unquoted trading company, or companies. I know that this will be widely welcomed by the venture capital industry.

I also propose to relax the conditions for CGT retirement relief by reducing the qualifying shareholding from 25 per cent. to 5 per cent.; and to extend this relief to cover full-time employees as well as directors. These changes will cost £50 million in a full year.

VAT THRESHOLD

I turn now to the VAT regime, which for many small businesses takes up a great deal of time and can be a particular source of worry. The best way to help is to keep them out of the VAT system altogether. I am therefore raising the VAT threshold to the maximum extent possible. The new threshold will be £37,600.

CASH ACCOUNTING AND BAD DEBT RELIEF

Over the past couple of years, I have also announced measures to allow traders to reclaim VAT on debts which remain unpaid after 12 months, and to encourage firms to take advantage of the cash accounting scheme under which traders only have to pay VAT to Customs when they themselves have been paid by their customers. I now intend to take this further in a way that will help many small businesses.

I propose to increase the ceiling on turnover below which firms may join the cash accounting scheme by £50,000 to £350,000. This will allow an extra 15,000 businesses to benefit, on top of the 400,000 that qualify already.

I also intend to help businesses which are too big to take advantage of the scheme. At present, VAT can be

reclaimed on any invoice which remains unpaid after 12 months. I propose to halve that qualifying period to six months.

These measures will give considerable help to companies, improving traders' cash flow by some £150 million in the year ahead.

VAT PENALTIES

In addition, I have a further series of reforms to propose to the current system of VAT penalties.

First, I intend to focus the rules better so that only larger errors and the most persistent offenders will incur the "misdeclaration penalty". This will reduce the number of penalties imposed by over 40 per cent. Secondly, I propose to place a three-year limit on the number of years' interest that can be charged when tax has been underpaid. Thirdly, I have decided to reform the VAT default surcharge so that traders will be notified sooner of default and surcharged at a lower rate, and only on larger defaults. This will make the surcharge more effective, but remove some 125,000 small traders from the default surcharge altogether. I know that this will be welcomed by small businesses.

KEITH REPORT

I have one final reform of the VAT penalty system. Following Lord Keith's 1983 review, the Government concluded that it would be wrong to give Customs discretion over the level of VAT penalties. After considerable debate, this conclusion was eventually accepted by the House—I remember the strong debates very well—but the controversy has continued ever since, and, over time, more and more people have come to believe that it is wrong to have a penalty regime which is almost entirely automatic.

I have considered this matter all over again, and I have concluded that the time has come to make a change. I propose, therefore, that Customs should be given some discretion to mitigate the penalties for misdeclarations, to enable them to take account of the individual circumstances of the trader. If necessary, of course, the trader will still be able to appeal to a VAT tribunal, which will also have greater scope for discretion.

These reforms will put the VAT compliance system on to a secure long-term basis. They will be of most benefit to small businesses, for whom the burden of compliance is heaviest; and I know that they will be widely welcomed on both sides of the House.

BLOODSTOCK

I have already announced my intention to extend value added tax to domestic fuel and power from 1 April next year. I have one further announcement to make on VAT.

As the House knows, it has long been this Government's intention to switch the burden of taxation from direct taxes on income to indirect taxes on consumer spending. It is perhaps less well known that Britain has one of the lowest effective rates of VAT in the European Community.

Against this background, and in a Budget designed to place the public finances on a sound footing, I have inevitably had to look very carefully at the whole structure of our current VAT regime, and particularly at whether all


of our existing zero rates should be maintained. Some of these zero-rated goods—for example, food and water—are clearly amongst the most basic necessities of life. Others—for example, sewerage and newspapers—perhaps fall into a different category.

Having reflected carefully, I have decided nonetheless not to extend the VAT base beyond fuel and power. I do, however, have one further announcement on VAT, which will I hope offer some consolation to those hon. Members who would rather be at Cheltenham today, watching the Champion Hurdle.

For some time, the bloodstock industry has been concerned about competition from other EC countries which levy a lower rate of VAT on horses. The single market has exacerbated this problem and created a major incentive to move bloodstock business abroad, threatening 30,000 jobs.

There have been intensive discussions between the Jockey Club and Customs, and I am pleased to announce that a way forward has been found. As a result of proposed changes in the Jockey club's rules, owners who wish to do so will now be able to organise their racing activities in a more commercial way. This in turn will enable them to meet the normal business test for VAT registration and to claim credit for VAT on purchases, subject to the usual rules.

I know that there have been representations on this from both sides of the House, and I know that registration on this basis meets the industry's concerns over this problem. No Government have done more for racing than this one—and quite rightly so, for it is an important industry, and a vital part of our national life. This measure will be welcomed by the industry and by its many supporters in this House.

UBR

I have one final announcement, which will be of direct help to many businesses.

My last Budget helped many thousands of firms by altering the business rates transitional arrangements to accelerate the gains of those who gained most from the change in the system, while freezing real rates bills which otherwise would have risen substantially.

The freeze applied for one year only, so many businesses now face a substantial increase in their rates bills in the year ahead—up to 20 per cent. over and above inflation on large properties and up to 15 per cent. on small properties.

It would, I believe, be wrong to impose such increases in present circumstances. I therefore propose for a further year to freeze in real terms the rates bills of those losing from the new system.

As a result of this and last year's measures, no business will face a real increase in its rates bill in the year ahead, and many will benefit from reductions. In cash terms, that means that no bill will rise by more than 3·6 per cent.—the increase in the RPI in the year to last September.

Subject to Parliament's approval, the Government will again pay extra sums into the business rates pool to ensure that the income of local authorities is not reduced. My right hon. Friend the Secretary of State for the Environment will shortly introduce a Bill to implement these proposals. Full details will be published today in a press notice.

The new measure will reduce the total business rates bill in England and Wales next year by 2·6 per cent. Bills in Scotland and Northern Ireland will likewise be reduced by 2·6 per cent. in aggregate. My right hon. Friends the Secretaries of State for Scotland and for Northern Ireland will be announcing the details.

These measures will again bring significant and early benefit to many thousands of businesses throughout the United Kingdom. About 800,000 business properties will benefit. The revenue cost is estimated to be some £370 million in 1993–94, and some £260 million in 1994–95.

Taken together, the measures I have announced will reduce the burden on business by about £1 billion in the year ahead. I hope that the House will agree that this is the best possible use for the sums I have been able to raise this year.

NATIONAL LOTTERY AND CHARITIES

The House is aware, also, of the Government's plans to introduce a national lottery from next year. This will provide a substantial increase in resources for a number of good causes: charities, sport, the arts, the national heritage and the millennium fund. I have no doubt that the lottery will be both popular and successful.

We have always made it clear that the national lottery will be taxed. In deciding the tax rate, I have taken into account the level of tax on other forms of gambling and the extent to which spending is likely to be diverted from other taxed activities. Much, of course, will depend on how the lottery develops and I shall keep the position under review, but for the first year of its operation I propose that national lottery tickets should be taxed at a rate of 12 per cent. Existing society and local authority lotteries will be exempt. Winnings will incur no tax whatsoever. I believe that these proposals will make sure that the national lottery gets off to a good start.

Since 1979, the Government have done an enormous amount to help charities. Indeed, their special position in society is recognised by the substantial tax reliefs, approaching £1 billion, that they already receive, and they will also benefit from the new lottery. I now have two further changes to propose.

First, I intend to raise the annual limit for income tax relief under the payroll giving scheme from £600 to £900 with effect from 6 April. Secondly, I propose that the minimum gift attracting tax relief for single donations under the gift aid scheme should be reduced from £400 to £250 from today, thus increasing substantially the incentive, through the tax system, to charitable giving.

These measures build on the principle that tax reliefs for charity should focus on what individuals give, rather than what charities themselves spend. Taken together, they will boost tax relief on donations to charities by some £30 million in a full year.

EMPLOYMENT MEASURES

In the autumn statement, the Government announced a number of measures to help the unemployed, and in my Budget I have set out my further proposals to help business and sustain recovery. That it the best way to promote employment.

However, we know from experience that unemployment may continue to rise for a while even after growth has resumed. That is a matter of great concern to the whole country, and it is a concern which I fully share. My right


hon. Friend the Secretary of State for Employment and I have therefore decided to take further special measures to help an extra 100,000 unemployed people.

First, we have decided to provide more help for those who wish to set up their own businesses under the business start-up scheme. This offers advice and financial assistance, and has been one of the most successful employment schemes. We propose to offer an additional 10,000 places in 1993–94. That will give a direct boost to small business creation and self-employment in years ahead.

Secondly, the Secretary of State for Employment proposes to introduce a new initiative to allow the long-term unemployed to learn the practical skills they need to find work. In the past the benefit rules have been an obstacle to allowing them to study. We intend to introduce an education allowance that will enable 30,000 long-term unemployed people to study on full-time vocational courses.

Thirdly, it is widely agreed that, in every community, there are plenty of jobs needing to be done, and plenty of people who want to do them. My right hon. Friend the Prime Minister has recently indicated the importance of offering more unemployed people the opportunity to undertake some form of useful work or other activity. We are therefore launching a new community action programme to allow 60,000 of the long-term unemployed to do part-time work in their local communities, organised by voluntary groups. Those involved will be paid an allowance based on their previous benefit rates plus a small premium. The scheme will start as soon as possible.

Those who have been unemployed for a long time tend to lose touch with the job market, and the problem is that they find it increasingly difficult to find an employer who wants to take them on. We propose to test in pilot schemes the feasibility and effectiveness of a new approach under which, rather than pay benefit to the long-term unemployed to do nothing, payments will instead be made, for a limited period, to an employer who recruits them. Employers taking on people who have been out of work for at least two years will receive a one-year subsidy based on the benefits which would otherwise have been paid. That subsidy will taper off as the period of employment progresses. Pilot schemes using different approaches will be launched this summer in four parts of the country. If they can be made to work, I believe that they could be useful, and would lead to permanent jobs for the long-term unemployed as the economy recovers.

Finally, the establishment of training and enterprise councils throughout the country has successfully brought local business people into the design and running of training and enterprise programmes for the unemployed. I now propose to offer the TECs a new £25 million fund. My right hon. Friend the Secretary of State for Employment will invite TECs to submit competing applications to develop the most imaginative schemes to help the long-term unemployed and stimulate job creation. The degree of local business involvement will be an important criterion against which each application will be judged.

These measures will cost £230 million, and will give special help to those who need it most, including disabled people. The disabled will be given priority in the vocational education initiative and in community action, helping us to build on our achievements in helping the disabled back to work. In the first nine months of 1992–93

the Employment Service found jobs for 31,000 unemployed disabled people, 25 per cent. more than in the same period of 1991–92. I am sure the House will welcome this.

PRIVATE FINANCE

Mr. Deputy Speaker, in my autumn statement I announced significant changes to the rules for the private financing of major infrastructure projects. This initiative has met with an enthusiastic response, and today I have a number of specific developments to announce.

First, hon. Members will recall that legislation has already passed through both Houses permitting the construction of a new fast rail link that will cut the journey time between Heathrow and Paddington. I can now announce that BAA plc and British Rail have agreed to proceed with this project, the Heathrow Express. This is a major new joint venture, involving private sector investment of nearly £300 million. As well as providing a substantial boost to the construction industry, this project will significantly enhance the transport infrastructure of the nation's capital.

Secondly, there is crossrail, a public sector project first proposed in 1989 to reduce congestion in central London. The Government remain committed to securing for London the benefits that crossrail will bring, but we now believe it would be preferable to take this project forward as a joint venture with the private sector. The present proposals for crossrail will therefore be re-examined. Our aims will be to maximise the participation and financial involvement of the private sector and to secure the best value for money for the taxpayer.

One of the most ambitious civil engineering projects ever conceived has been made possible by private finance. I refer, of course, to the channel tunnel. This will provide a fast link between Britain and Paris, cutting journey times dramatically, but those times could be cut still further by reducing the time taken for journeys within Britain itself. For that to happen, a new rail link will be required—from London down to the channel tunnel itself. This will be a massive undertaking—one of the largest infrastructure projects in this country since the war—but, after careful consideration, the Government have decided to make a firm commitment to the project. So I can announce today that the channel tunnel rail link will go ahead.

My right hon. Friend the Secretary of State for Transport will be inviting the private sector to come forward with bids so that the project can be taken forward as a joint venture as soon as possible. We will discuss timing with the private sector. We hope to be able to introduce a Bill as soon as the legislative timetable permits, and to see the new line fully completed around the end of the decade. The Government will make their own financial contribution, recognising the benefits that will accrue to domestic travellers from the new link. Full responsibility for the project, its management and completion will be transferred to the private sector.

Subject to the results of detailed work by British Rail over the next few months, the London terminus of the new link will be located at St. Pancras. This will provide a new lease of life for this magnificent Victorian building, which will become the gateway to London for international passengers. My right hon. Friend the Secretary of State for Transport will make a statement on the details of the route shortly.

Over the years ahead, my private finance initiatives will play an ever increasing role in the modernisation of Britain's infrastructure. The projects I have announced today represent a considerable step forward. They will not only improve the country's transport network; they will also create jobs. I am sure they will be warmly welcomed by the country and by the House.

INCOME TAX

I turn finally to income tax. My priority in this Budget has been to set out a clear strategy for reducing public sector borrowing over the medium term. I am therefore unable this year to reduce the basic rate of income tax. I also propose to leave the higher rate of tax unchanged at 40 per cent.

However, in my Budget last year, I opened up an alternative route for moving over time towards our ultimate objective—a 20p basic rate of income tax for everyone. The new lower rate band I announced last year at a stroke took 4 million taxpayers on low incomes down to the 20 per cent. rate, cutting their marginal rate of tax by a fifth.

In this Budget, I have taken my reform a step further. The Government's 20p pledge not only involves a reduction in marginal tax rates for 19 million basic rate taxpayers, but, also, when the basic rate is eventually brought down to 20p, tax reliefs for basic rate taxpayers will, of course, be worth 20p in the pound, too. In this Budget, I have brought forward that change by restricting three specific tax reliefs to 20 per cent., not just for basic rate taxpayers, but for all taxpayers.

First, I have reduced the tax credit on dividends to 20 per cent., to cut the rate of advance corporation tax which companies pay on dividends. Secondly, I will be reducing the rate of relief on mortgage interest payments to 20 per cent., to cut the subsidy on borrowing and to pay for a reduction in the tax on housing transactions. Thirdly, I will be restricting the tax relief for married couples to 20 per cent., to make it worth the same for all taxpayers.

All these measures are sensible reforms in their own right. When revenue has to be raised, it is far better to do this by broadening the tax base than by increasing tax rates; but, in addition, the restrictions I have introduced will also allow me to make further progress in getting income tax rates down.

I therefore propose to increase the width of the new 20p band in 1993–94 by £500 to £2,500. That will help all taxpayers currently paying tax at 25 per cent., and it means that, in the coming year, nearly 5 million taxpayers will

face a marginal rate of income tax of only 20 per cent. Already, for about a fifth of all taxpayers, I will have delivered on our promise of a 20p rate in the first Budget of the Parliament, and I will have done so by a sensible and fair reform of the tax system.

But I can also go further. The measures I have announced today will also allow me to make a further extension of the 20p rate in 1994–95. From 1 April next year, I propose that the 20p band should cover the first £3,000 of taxable income, £500 more than in the year ahead; and we shall continue to widen the 20p band in the years to come—year by year, we will make our progress towards our objective: a 20p basic rate of tax for everyone.

CONCLUSION

In the first Budget of this Parliament, I have set out the Government's economic strategy. I have cut the tax burden on business; and given help for small businesses, exports and the unemployed. I have demonstrated clearly how we will bring Government borrowing down in the years ahead. That is the only way to sustain growth and build a strong and sound economy in the 1990s.

This is a Budget for sustained recovery and a Budget for jobs—not just for this year and next year, but right through this decade. I commend it to the House.

PROVISIONAL COLLECTION OF TAXES

Motion made, and Question,
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

(a) Beer (rate: existing regime) (motion No. 2);
(b) Wine and made-wine (motion No. 5);
(c) Cider (motion No. 8);
(d) Tobacco products (rates) (motion No. 9);
(e) Hydrocarbon oil (rates) (motion No. 11);
(f) Vehicles excise duty (rates: general) (motion No. 16);
(g) Vehicles excise duty (exceptional loads: 1) (motion No. 17);
(h) Vehicles excise duty (old bicycles) (motion No. 19);
(i)Vehicles excise duty (trade licences) (motion No. 20).—[Mr. Lamont.]


put forthwith, pursuant to Standing Order No. 50 (Ways and Means Motions), and agreed to.

Mr. Deputy Speaker: I now call on the Chancellor of the Exchequer to move the motion entitled "Amendment of the law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week, and then they will be decided without debate.

Budget Resolutions and Economic Situation

AMENDMENT OF THE LAW

Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting any supply, acquisition or importation;
(b) for refunding any amount of tax;
(c) for varying the rate of that tax otherwise than in relation to all supplies, acquisitions and importations; or
(d) for relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Lamont.]

[Relevant documents: European Community Document No. 4683/93, the Commission's Annual Economic Report for 1993, and the draft Decision adopting the Report.]

Mr. John Smith: I am happy to offer the Chancellor the customary congratulations on the style and manner in which he delivered his Budget. As he noted, this will be the last spring Budget and he is the last Chancellor who will deliver the Budget in its traditional form.
I welcome the change to a unified Budget and public expenditure statement, a change which, after all, the Opposition proposed. May I suggest a further reform for the new arrangements later in the autumn? The Chancellor should consider abolishing the increasingly absurd purdah rule. I suggest that he makes an early announcement to that effect, perhaps the earlier the better, so that he and not someone else can take credit for an overdue reform.
Those who have listened to this debate will have been shocked beyond belief at the cynicism of the Conservative party which went into the last general election as the party committed to low taxation. [HON. MEMBERS: "We have done that."] Conservative Members say that they have done that. Some innocents on the Conservative Benches describe the Budget as a Budget of low taxation. Let me remind the House of what the Government said during the last election campaign—[Interruption.] I know that some Conservative Members do not want to hear this, but I think that the public do.
Let me start with VAT. On 28 January 1992, the Prime Minister said:
There will be no VAT increase. Unlike the Labour party, we have published our spending plans and there is no need…to raise VAT to meet them.
It is difficult to be more categoric than that. During the election campaign, the Conservative campaign guide stated—[Interruption.] I know that that is a matter for humour, but we are entitled to treat it seriously. The guide stated:
Following a series of unfounded and irresponsible scares by the Labour party, the Prime Minister has confirmed that the Government has no intention of raising VAT further.
To get precisely to the point, during the election campaign, at a press conference, Mr. Tony Bevins of The Independent asked the Prime Minister on 27 March 1993:
Can you give the same pledge that Mrs. Thatcher gave in 1987 that you will not extend the scope of VAT to children's shoes and clothing, gas, electricity and food?
The Prime Minister replied:

I've made the pledge in the past, I've made it clear. We have no need and no plans to extend the scope of VAT.
I do not know how the right hon. Gentleman can sit there as Prime Minister of a Government who are capable of deceit on such a scale. The Conservative party went into the election and was pressed day after day about increases in VAT and still came back the answer, "Lies and scaremongering from the Labour party. The Conservative party wouldn't do anything like that." Those people make pledges as though they matter not a whit.
It is not just a question of VAT—and I will consider the effect of the VAT increase. The Prime Minister knows perfectly well that commitments were made on national insurance as well. On 28 January 1992, the Prime Minister stated:
I have no plans to raise the top rate of tax or the level of national insurance contributions."—[Official Report, 28 January 1992; Vol. 202, c. 808.]
However, the Government have proposed today a 1p increase in national insurance contributions. No doubt they will go to the country and say, "We haven't increased income tax. We have marginally increased the 20p band." People are not so foolish. They understand clearly that 1p on national insurance is, if anything, worse than 1p on income tax. Apart from anything else, it bites further down the scale. On tax on income and tax on spending, the Conservative party has cynically and ruthlessly betrayed the pledges which it gave to the people of this country. It will not be forgiven for that.
The Conservative party used to say that VAT was all right because, after all, people could choose whether they bought the goods on which VAT was levied. Will it tell us now that people can choose whether to have gas or electricity in their houses? The Government must know perfectly well that throughout the land a 17·5 per cent. increase in fuel bills will push many families who are just on the edge, wondering whether they will manage, to despair.
It is no good the Government saying that they will adjust income support levels. Millions of people in Britain are poor but do not qualify for income support and will be hit savagely by the 17·5 per cent. increase in the basic cost of living. The Chancellor says, "It is all right: I have extended the 20p band." But what does the extension of his band amount to? This year it amounts to about 25p a week and at best in future years it will amount to £1. How will that help people to meet the extra bills that they will have to pay as a result of all the other tax increases and reductions in allowances? Indeed, taken together, the tax increases announced in this Budget must be one of the highest hikes ever.
We have also seen the freezing of allowances. That means that more people will be brought into both the standard and higher rates of tax. All this from the party which said that it was the party of low taxation and paraded that all over the country during the general election campaign. There are hundreds of examples of that day after day.
The Government have betrayed their pledges and caused unnecessary increases in the cost of living. They should have been busy in this Budget looking for loopholes in taxation. The Chancellor may have discovered a few here and there, but there are massive loopholes in taxation by which people do not pay the proper amount of tax. Here we have the Government putting an even heavier burden on the ordinary people of


Britain. The Government must bear in mind that the public's conclusion about the Budget will be simple and clear: the Conservative party is a party without honour and without feeling.
The other question that people will ask about the Budget is whether it will bring down unemployment. [HON. MEMBERS: "It will."] There can surely be no doubt that unemployment is Britain's No. 1 problem. We shall see in the November Budget whether this Budget has brought down unemployment. If Conservative Members want that to be a test, we shall make it a test for the Government. The Government cannot simply wish away unemployment. The Chancellor announced inadequate measures on that front. The Government do not seem to understand how depressing and debilitating it is for our people to suffer unemployment of more than 3 million. It is economic madness as well as a social tragedy.
Ministers should bear it in mind that there is hardly a street in Britain in towns or villages, in the country or elsewhere, which the tentacles of corroding unemployment have not reached. It is also depressing to consider that, each time we plunge into another Tory slump, it gets longer than the one before. The last one lasted five quarters. We have already gone 10 quarters in the slump that we are suffering now—the longest since the 1930s.
What measures does the Budget contain to deal with the problem of unemployment? The Chancellor said that the Secretary of State for Employment would announce a few measures which would potentially affect 100,000 people. But 300,000 people have lost their job since the election alone. So even at his most optimistic, the best that he can touch is one third of the people who have become unemployed since the Conservative party was elected on a pledge to reduce unemployment. The measures are wholly inadequate to deal with the scale of Britain's jobs crisis.
There is some merit in the Chancellor's proposals. For example, he has removed the restriction on people on benefit taking up educational courses. Why do we have to wait so long for a simple and obvious change such as that to be introduced? Why does misery have to become desperately acute before the Government will take even minor measures to deal with it?
As we know, the Government's spending on training—one real way in which we could tackle unemployment—has fallen between 1991 and now by 14 per cent. in real terms. That is a reduction of £300 million. So the amount of training falls by 14 per cent. at the same time as unemployment increases by 87 per cent. That gives a clear idea of the Government's approach to the problem.
The Chancellor's proposals in the Budget hardly fill the hole that has been created by the Government's previous actions. Therefore, the Government cannot claim any credit for action on unemployment. That is hardly surprising because the Chancellor gives such a low priority to the unemployed. Who has been more callous and complacent than him? Both he and the Prime Minister want us to forget that it was the Chancellor who told us in the House that unemployment was a "price well worth paying." He said it; he meant it. He has never apologised for it. If nothing else, he might have done that today.
An apology is also due from the Chancellor for the failure of his last Budget—a failure which makes us, and indeed the whole country, cautious about believing anything that he says to us today. After all, his record undermines his credibility. Let me remind the House what he predicted a year ago. He said that the economy would

be growing by 3 per cent. and manufacturing output would be growing by 4 per cent. by this time. Let me remind the House of the sad reality—the outturn.
The economy shrank during the whole of 1992 and, even on the latest figures and giving the Government the benefit of the doubt, an increase of barely 1 per cent. per annum is likely. Manufacturing output, instead of growing at 4 per cent. as predicted last year, is not growing at all according to figures published yesterday. A year ago in the Budget the Chancellor predicted that the PSBR would be moving virtuously back towards balance. We know how absurd that was. We know how the Chancellor's management of the economy has thrown Britain deeper into debt, with a projected PSBR of £50 billion.
If the public had known what would be the outcome of the right hon. Gentleman's Budget last year in terms of constantly rising unemployment, deepening recession, rising bankruptcies and home repossessions, let alone the betrayal of election pledges, how many of them would have given the Tory party the benefit of the doubt on the night of 9 April last year? Precious few. We now know that their trust has been spectacularly betrayed.
The other vital question to which the country wants to know the answer is when action will be taken, in a Budget or otherwise, to halt the long, sad economic decline of Britain. Where are the measures of investment and training that will revive the British economy and, in particular, its vital manufacturing sector? The Government will not publish the report from the Department of Trade and Industry that tells us about our problems of weak investment and our skills problems and shows with chilling reality what is happening to British manufacturing industry.
The most important and worrying factor is that investment in manufacturing industry is 6 per cent. lower than it was in 1979 when the Conservative party took office. It appears that civil servants in the Department of Trade and Industry are guilty of the dreadful crime of talking Britain down. Any criticism of this incompetent and dishonest Government is regarded as talking the country down. People are more worried about who is pulling the country down—the Government. They are unable to face up to the scale of the challenge that Britain faces. We shall run into serious balance of payments deficits. We had another foretaste of that in the Chancellor's predictions today.
From the industrial revolution until 1983 we had a surplus in manufacturing trade. Under this incompetent Government we went into deficit for the first time in 1983 and we have remained there ever since. If we examine Conservative economic policy, we find that it will be extremely difficult for us ever to return to a surplus. We shall be able to set a course of sustainable economic recovery only when we begin to invest in industry, in the skills of our people and in the public infrastructure so crucial to our economic development.
On the infrastructure front, we got one reannounced real project and another one postponed. People are doubtful about this channel tunnel business. It appeared to me that the right hon. Gentleman was postponing it yet again. We may find that we have no proper connections on this side of the English channel, while the other side has excellent connections. As for the railways, the most intelligent step that the Government could take would be


to remove the threat of privatisation; that would be sensible, and would do a great deal of good to the morale of a beleaguered industry.
Let me briefly remind the House of the Conservative party's promises. It promised economic recovery following its election. Hon. Members may remember the slogan: "Vote Conservative on Thursday, and recovery will continue on Friday". That was 300,000 unemployed people ago. According to the Conservatives, the public expenditure programme set out for the future would be rigorously maintained. There would be no cuts in public expenditure; that was another scaremongering Labour story. What is happening now? The Chief Secretary to the Treasury is undertaking what may be the biggest review in this country's history to cut public expenditure.

Mr. Michael Fabricant: Very good.

Mr. Smith: The hon. Gentleman may say "Very good", but his party did not say that at the time of the general election. I am sure that, when voters asked the hon. Gentleman, "What about spending on schools, hospitals and training?", he replied, "Do not worry; all the programmes that the Conservative party has put in place are costed, and they will be fully maintained if you elect a Conservative Government." Did the hon. Gentleman tell those voters, "The Chief Secretary will slip in a few months later and undo all those promises"? That is yet another example of a blatantly broken promise. Worst of all, the Government promised that there would be no increase in taxes, direct or indirect.
This is a shameful Budget, presented by a cynical party, and I hope that the Conservatives live to regret it.

Mr. John Biffen: I note the content of the Budget, and will refer to it in due course. First, however, let me congratulate my right hon. Friend the Chancellor of the Exchequer on the sheer stamina with which he made his powerful case. His was a valedictory speech—a valedictory Budget speech, that is, in the light of the reforms that will be implemented in the autumn, when the Chancellor must deliver a speech covering not only budgetary arrangements but public expenditure.
It occurs to me that the House must seriously consider the form that our proceedings will take. The Chancellor's audience is not confined to the House of Commons; he has an audience outside. He will face the difficult task of making a speech of reasonable duration without reverting to Gladstone's five hours of 1853—I have done a little homework to acquaint myself with the potential limits of such speeches. Determining the appropriate form of our debates once the Budget and public expenditure speeches have been combined will present the House with a serious problem.
I wish to make a few general observations about the speech of the right hon. and learned Member for Monklands, East (Mr. Smith). First, let me say how much I enjoyed it. The right hon. and learned Gentleman spoke from the heart about revenue and public spending issues; he did not touch excessively on the subject of borrowing, but it was there, just beneath the surface. He was speaking of the very matters that brought the House into being, and on which it has asserted its authority for generations. He

spoke as though he thought that that arrangement was permanent, but he knows very well that he must fight to ensure that the House remains master of these great areas of economic policy. He must partner his convincing rhetoric with the logic of his hon. Friend the Member for Dagenham (Mr. Gould): I offer him that dream-ticket prospect.
Of course we welcome the approaching debate between the two sides of the House, which will concern the social and economic priorities that we consider appropriate in regard to revenue and public spending and wise in regard to borrowing. That is what this place is all about. At least the words of the right hon. and learned Member for Monklands, East supported that proposition; I hope that his judgment does the same.
Before commenting more directly on the Budget, let me declare my interest. I am a non-executive director of Glynwed International plc and J. Bibby and Sons plc—both manufacturing companies—and I am therefore interested in the Budget's contribution to our manufacturing base. My right hon. Friend the Chancellor has made some valuable proposals for industry, and his advance corporation tax measures—he confessed that they were somewhat technical, which, in my view, showed a moderation of judgment—will be widely welcomed. Equally welcome will be the priority that my right hon. Friend has given, in a difficult time politically, to the industrial sector; that is matched by the proposals in respect of unemployment.
I shall confine my remarks to the central issue of the deficit. In a Times article on 3 March, just a few days before his death, Lord Ridley said:
What has happened for years now is that fiscal policy has been too lax and monetary policy too tight.
I am very happy to preface my comments with that quotation. I believe that, given his views and the manner in which he conducted his campaigns, Lord Ridley will long be remembered in the House as an example of the grit that provides the pearl in the parliamentary oyster. I have a deep personal affection for his memory, and I welcome this opportunity to place on record my esteem for such a personality.
I fear that the deficit is uncomfortably large. That is an anxiety that I share with my right hon. Friend the Chancellor—and, indeed, with almost every other Member of Parliament; certainly with every Conservative Member. Given that the deficit is perceived to be running at about £50 billion, what measures should be taken? I may be a little more anxious than some of my colleagues, because I do not accept the proposition that it will wind down easily with the recovery in the economy. There is now a discontinuity between output and employment; I think that output can recover, while unemployment will continue to lag behind that recovery. In that event, all the recessional costs of the deficit are likely to remain higher than those resulting from past practice.
My right hon. Friend says that he will try to deal with the deficit by means of substantial measures to increase revenue. I am happy to stand here, shamelessly, as a taxing Tory. I cannot believe that, in the present circumstances, the deficit can be seriously reduced other than by an increase in revenue, which means identifying taxes that can be raised to that end. I am not outraged in the least by the increases in national insurance, or by the increases in VAT in respect of fuel and power. We have a narrow tax base


in comparison with our major partners and competitors, and the proposed reforms are welcome. I will leave it at that.
I am not quite so happy about the timing. I understand the deep anxiety that is felt: the recovery from recession is tentative, and must not be subject to undue heavy-footedness on the part of the Government. However, I feel slightly uneasy about leaving the increases in taxation until so far in the future. Therefore, I would welcome it if the matter could be reconsidered in the November Budget.
In politics, there is a most powerful instinct—the Augustinian tendency—to say,
Lord, make me perfect—but not yet awhile.
I feel that the Budget contains all the right instincts, but the timing is a little cautious and too far into the future. I hope that my modicum of unease will not be validated. I should be delighted to discover that my right hon. Friend has made good judgments on both the measures and their timing. Above all, as my right hon. Friend needs luck, that is exactly what I shall wish him.

Mr. Malcolm Bruce: I recall being asked yesterday what I thought that the Chancellor might achieve in the Budget. I said that, if he were sensible, he would recognise that, after the disasters that he had inflicted on us, he could do very little good, but should be careful not to do harm.
Clearly, the Chancellor was not listening to me or anyone else. The Budget will be greeted with disappointment and despair in many quarters of the country. It gives a sharp rap over the knuckles to those who suggested that we were at the bottom of the recession and could expect things to get better. It is clear that the Government expect things to become worse, and we are all going to be dragged down with them next year and the year after.
As to the general background, I find it extraordinary that the Chancellor of the Exchequer can stand at the Dispatch Box and calmly state that the public sector borrowing requirement will be £50 billion next year. He did so having totally lambasted those people who suggested that, if he had taken a little more advice earlier and invested earlier, he might have avoided the situation in which he now finds himself. The Chancellor fails to understand the meaning of investment and the Government's role in ensuring that investment takes place. He is now borrowing to pay for failure, rather than investing to secure success.
The Chancellor's comments on the events of black Wednesday and our leaving the exchange rate mechanism were extraordinary. If one were to believe the right hon. Gentleman, that would have been the first national debacle to be masterminded in advance. He gave himself credit for the achievement, and failed to recognise that he has not left British industry and the British economy in a position to deal with the single market. For a Government who claim to believe in the single market, it is the height of embarrassment to enter that market on 1 January, having just left the mechanism that was designed to make it work with some stability and confidence.
As the right hon. and learned Member for Monklands, East (Mr. Smith), the Leader of the Opposition, powerfully and eloquently made clear, the reality is that the Government have been found to be political cheats who reached a position of power by sheer dishonesty and

defrauding the electorate. The Budget is a tax-raising Budget designed to tax, tax and tax again—it will tax this year, tax next year and tax even more the year after.
What a cheek for the Government to pretend that theirs is the tax-cutting party. They have consistently increased taxes year after year, but so far the public have believed them. One can only hope that today's Budget will finally make the public realise that the Tories can never be trusted to tell the truth, even about history, never mind about promises for the future.
The Budget contains taxes—not just income tax. As the right hon. and learned Member for Monklands, East said, the extension of the 20 per cent. band amounts to a difference of 50p a week. For most people on middle incomes, that money will be clawed back by the Budget's failure to index the general allowance. Therefore, most people will be £1·50 a month worse off as a result of those two measures.
The Budget increases excise duties by double the rate of inflation. The increases in tobacco prices are mischievous and malicious. I believe that increases in tobacco tax are desirable for the health of the nation, but why target people on lowest incomes, who buy the cheapest cigarettes? That seemed to be a vindictive little measure. The increase in car tax will be particularly condemned in rural regions, where there are no other means of getting about and the Government have not introduced measures to try to improve the existing means.
My right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) asked me what we could welcome in the Budget, as we should try to be even-handed as we are Liberal Democrats. I find precious little to welcome. I welcome one aspect: the Chancellor has listened to the arguments and recognised the importance of the Scotch whisky industry. As three distilleries in my constituency have recently had to reduce their labour, I hope that that proposal will at least prevent further job losses in that important industry.
There are some welcome measures for the small business sector, such as those relating to the loan guarantee scheme and to value added tax on cash accounting, although the increase could have been much more. I have no doubt that the voters of Newbury will be expected to welcome the changes in the bloodstock regime, but I doubt that they will be very much impressed by them when they look at the consequences for their electricity bills.
By freezing the increase in business rates, the Government have acknowledged the burden that the rates create. However, they have also acknowledged their total failure to create a viable system of business rates that does not require an annual fix.
The Budget will be desperately disappointing for the unemployed. The Chancellor referred to worries about the rise in unemployment and the difficulties that the unemployed face, but he showed little willingness to grasp the nettle. With respect to the community action programme, I suppose that it is refreshing to bring back something which worked, but which was abolished by the Government. However, that measure will help only a relatively small number of people.
The requirement for special measures for the long-term unemployed are welcome in principle. However, by limiting the measures to people who have been unemployed for two years, the Government have drawn


them far too tightly. I only hope that the pilot schemes will prove successful and the measure will be extended to people who have not been unemployed for that long.
When we look at the list of bad news we see a 1 per cent. increase in national insurance—a tax increase by any other name. We see the restriction on mortgage tax relief, which constitutes a real cost increase for domestic home owners. We see the freezing of tax thresholds and the appalling prospect of the introduction of full VAT on fuel in two years. That is the one measure for which the Chancellor will be universally condemned. It is breathtaking that the Chancellor can introduce such a measure in such a way without acknowledging the poverty and hardship that it will cause millions of people who are on low incomes but do not quality for benefit. Few people in the country will not find the 17·5 per cent. increase in fuel bills in two years anything other than a substantial burden.
The Budget is, effectively, a Budget of despair and a Budget of desperation which contains little for the unemployed and nothing for those struggling to cope with the recession. In it, the Chancellor merely exhorts those looking for hope and encouragement to hang on now. By God they will have to pay later.

Mr. David Howell: As my right hon. Friend said in his marathon Budget speech, of course recovery is coming. We know that from seeing what is happening in the United States, where the growth figures and indicators are rapidly improving. I see no reason why the progress should be aborted unless, having been started by George Bush—who received precious little thanks for it—President Clinton becomes too enthusiastic in his protectionist tendencies. If President Clinton does so, recovery will be damaged and improvements here will be correspondingly damaged. However, I do not believe that will necessarily happen. As long as we keep a maximum pressure on the Americans and everyone else to avoid protectionist measures, the recovery will come. My right hon. Friend was right to set the measures that he has announced in the context of that coming recovery, to ensure that it goes ahead and is not aborted and undermined by over-hasty measures or allowing the economy to overheat too soon.
Budget occasions—of which this will, mercifully, be the last—generate expectations that are far too high. Everyone looks to my right hon. Friend, or the Chancellor of the day, to achieve miracles when they cannot be achieved at any time, certainly not today. One forgets the European context in which my right hon. Friend is operating. Anyone who thinks that we have problems should look at the rest of Europe. Italy is going down into a black hole; France is about to experience a political earthquake, rather belatedly having the vestiges of socialism—all but President Mitterrand himself—swept away and finding itself in a completely new phase; the Swedish economy is drowning altogether; and the German economy is shrinking.
In those circumstances, it is indeed miraculous that my right hon. Friend has been able to produce a Budget of balance and prudence and to develop so many interesting, if not necessarily very dramatic, proposals to carry us forward into the recovery process—a process that the

United Kingdom will be the first European Community country to enjoy. We shall certainly have a higher rate of growth than Germany and many other continental European countries.
Like the very best Budgets, this one will mature. It will not result in immediate flag-waving and cheering, but neither does it justify rather splendid ranting such as we heard from the right hon. and learned Gentleman the Leader of the Opposition, who seems to have a basically erroneous concept of what my right hon. Friend is doing. My right hon. Friend says that he has gone this year for a Budget that is broadly neutral. That is a sensible but difficult stance. My right hon. Friend is building in, for coming years, a wedge of changes in the fiscal and monetary balance which will make sense against the background of rising economic activity. I recognise the skill of that approach, which I think is right.
I greatly enjoyed the speech of my right hon. Friend the Member for Shropshire, North (Mr. Biffen). Indeed, I always enjoy his speeches. I am a little less worried than he is about the timing of the Chancellor's proposals. Incidentally, I should like to associate myself most closely with my right hon. Friend's remarks about the late Lord Ridley—a marvellously non-conformist character who sometimes drove his friends, and certainly his opponents, to distraction, but who contributed mightily to the thinking part of our affairs. He will be sadly missed. My right hon. Friend the Member for Shropshire, North has said that Lord Ridley was the grit that generated the pearls in the parliamentary oyster. Indeed, my right hon. Friend himself is not a bad piece of grit. In any case, we shall certainly miss Nicholas Ridley very much indeed.
It is too soon to go into the minutiae of this very complex and interesting Budget, so I shall refer to three major issues. The first is the purdah that is associated with Budgets. I agree with the right hon. and learned Gentleman the Member for Monklands, East (Mr. Smith) that it is a very good thing that we may now be moving—I hope that we shall indeed move—away from this ridiculous convention, which guarantees that tax reforms are ill considered, ill prepared and dumped on an unsuspecting world in ways that have to be heavily revised, at great cost, afterwards.
I shall be very glad indeed if my right hon. Friend's bold reform—bringing the revenue and expenditure sides of the Budget together, starting this November—results in opening up the discussion of tax reforms, which we could have done with years ago. It is absolutely ridiculous that, at present, the Treasury policy-makers have to go into purdah, whereas many of their advisers, including the seven wise men, have no purdah at all. Indeed, they fill every column with contradictory views, and these are added to by a variety of people—assorted ex-Chancellors and other commentators of every kind.
In the case of this Budget, when there has been a vast surplus of advice, all we have lacked is additional comment from the Archbishop of Canterbury or the Chief Rabbi. We have had a swirl of outside advice, but the Treasury has been held in purdah, unable to participate in policy-making.
The House of Commons ought to be able to take a little more initiative, perhaps by organising hearings before the Select Committee on Treasury and Civil Service in advance of the Budget. There is nothing to prevent us from doing so. We might have difficulty in getting Treasury Ministers to answer, but we could certainly set the debate


going far more vigorously than happens at present. In this regard, the House has a role to play, in addition to my right hon. Friend's initiative of changing the whole timing of the Budget cycle—a move that my right hon. Friend will be remembered for being bold enough to make. Others will have to sit back and say that the officials never told them they could do that—as was said in the 1930s, when the Conservatives decided to go off the gold standard.
The second point on which I want to comment relates to capital and infrastructure. This is one area in which constant weakness has raised costs and accelerated the rate at which, in each cycle, the economy becomes overheated, increasing the volatility and management difficulty of the British economy. I want to see a very much greater impact from investment in the infrastructure of this nation. to cut costs and make us more competitive and to help to accelerate employment, as undoubtedly will happen.
I welcomed in the autumn statement, and I welcome now, the final sweeping away of the old Ryrie rules, which prevented adequate harnessing of private capital to the public sector. It is very exciting that new projects are coming forward and that we shall be able to do what the great cities of Asia have long since been doing: mobilise massive flows of private capital to bring infrastructure, particularly transport, into the 21st century—in our case, even into the 20th century. In expressing that welcome, I gladly declare my own interest as a non-executive director of Trafalgar House, which has a major interest and has had some success in developing privately financed public-sector projects.
Easing the advance corporation tax rules and improving the Export Credits Guarantee Department cover will also help very much in that direction. But that is not enough, so I must ask my right hon. Friend and his advisers in the Treasury to consider going further and starting to develop in this country what has been developed in many other countries—a separate capital budget for that part of the total budget which relates to public sector asset creation. The figures appear in the expenditure papers and, no doubt, in the Budget papers that are now being circulated, which I have not yet had time to examine.
We are told that, of the total Budget spend, about £30 billion is designated for public-sector asset creation. Our friends in Japan say that a Government deficit should be financed by operating on the basis of market psychology and bringing home the fact that much of the deficit arises precisely from capital spending. The Japanese therefore have infrastructure bonds and normal deficit bonds, which they put before the market.
That would not get round the problem of the market's attitude that this is all Government expenditure and should all be treated with the same scepticism when it comes to financing. However, we could make a major start in changing the psychology of the funding problem if it were possible to designate much more carefully and clearly the part of total Budget expenditure and the part of the total deficit to be funded that represented capital expenditure and public sector asset creation.
I ask my right hon. Friends in the Treasury to consider that idea much more carefully in the future. I believe that it would help us to get out of the bind that we have been in. Throughout the 1980s, we enjoyed great success in achieving rapid growth in the economy, but we did not see adequate growth in support and infrastructure—the true supply side of the economy—that many of us, from the

early 1980s, urged was necessary. We said that, if that course were not pursued, there would be serious bottlenecks, considerable cost increases and a slow-down in the general performance of the economy.
That is a very important area, and I was very glad to hear what my right hon. Friend the Chancellor had to say about it. However, more thinking, better presentation and a little more radicalism in respect of funding the capital side of the Budget are required.
I am glad that we are now thinking radically about proposals to give people the opportunity and the dignity of working part-time or doing voluntary work, or of going into full-time education or training without forfeiting the state payments—perhaps "benefit" is the wrong word.
I understand the joy for the Opposition of taking the figure of 3 million, or wherever we have got to, and using it as a rolling pin with which to hit the Government on the head. There are experienced Members on the Opposition Benches who have made proposals over the years for changing the nature of unemployment. They know that 3 million is a good figure with which to bash the Government but that it is not a real representation of the problem.
We have to unravel the larger figure, and understand that within it there is a vast variety of different conditions which require sensitive and varied remedies in order to remove the whole concept of the scrap heap of unemployment. We must create in every individual who wants work, and in some who may have given up hope of getting work, the feeling that they have a function and a dignity in society.
It is right to start with small schemes, and my right hon. Friend announced a few small schemes; indeed, some are not so small. They are interesting, and I hope that they will grow and develop, and that it will be possible, even in the adversarial politics which we operate in the House, to begin to do away for all time with the idea of the "scrap heap" of unemployment and the self-inflicted misery and undermining of confidence that that language creates. It should be made clear that everyone has a function, and the dignity which goes with that function.
On the monetary side, what my right hon. Friend is trying to do—again this is not the stuff of headlines—is achieve some rebalancing between the monetary and fiscal stances in the economy. We have had the welcome descent in interest rates which has been amazingly rapid, and monetary conditions are reasonably easy. If the Bundesbank cut interest rates again, it might be possible for us to go a point or two lower, although it would be unwise for my right hon. Friend to change the relative short-term interest rate posture of the British economy vis-a-vis the German economy.
Whenever we talk about monetary policy in the House, and whenever I hear my right hon. Friend talk about his plans for short-term interest rates, I feel that he is taking too much on his shoulders. The responsibility for short-term interest rate policy should be spread more widely and should be given more publicly to a central monetary authority, a reformed Bank of England, rather than left solely to the action and discretion of the Treasury, the Chancellor of the Exchequer and other Ministers.
People will say that monetary policy should not become unaccountable in the hands of bankers, but one does not need to go all that way. A sensible compromise would


ensure that day-to-day responsibility for setting short-term interest rates and handling short-term monetary policy could be in the hands of a central monetary authority, while there was appropriate consultation with the political masters and those accountable to the House. That is possible—it happens in other countries. The Bundesbank is not totally separate from the political influences in Bonn. It pays attention to them, but it controls monetary policy short term, and that gives monetary policy and the setting of short-term interest rates additional credibility, which our system lacks.
I should like to see a more independent Bank of England, without a total separation between the monetary authority and the Treasury. That would avoid the over-politicisation of interest rates and would enable that whole side of the budgetary balance to be managed in a more sophisticated way. It would give additional credibility to the currency and to the monetary judgments about short-term interest rates in relation to the currency. It would strengthen monetary policy generally. I hope to hear more constructive thoughts on that from my right hon. Friend in future; I believe that they will come.
Generally, this is obviously a Budget of consolidation for this year, but it also makes an important point and breaks with a restrictive stance of the past. The Treasury was a "one year only" organisation—it could think only one year ahead. All parties in the House have urged that Treasury policy should begin to evolve one, two or three years ahead, both on the revenue and on the expenditure sides. One day, it might be possible to get Treasury officials to agree to something that cost more in year one because it would produce savings in years two and three. I can think of many projects which fell at that hurdle when I was a Minister; if a project cost more in year one, it was dismissed out of hand.
With courage, which is his characteristic, and boldness, my right hon. Friend has started to raise our eyes to the length of the true budgetary cycle, which stretches over two or three years. It has taken courage, particularly at present, to do that and to drag the House into the modern world when not everything can be compressed within a one-year timetable.
So we have consolidation now, and radical change lying further ahead. Given that recovery is coming, and given that it has to be sensitively handled, not by the elephantine assaults of the right hon. and learned Member for Monklands, East but by the subtlety and patience of my right hon. Friend the Chancellor, I believe that we are on the right path, and that we should stay on that path and give him full support.

Mr. Roy Hughes: It is customary to contratulate the Chancellor on the delivery of his Budget. That I readily do. I note that his two senior colleagues, the right hon. Members for Shropshire, North (Mr. Biffen) and for Guildford (Mr. Howell), have rallied to his support, but it has been one of the least inspiring Budgets that I have had the privilege of listening to in my years in the House. One could recognise the reluctance to pour weedkiller on those lingering green shoots; nevertheless, much damage has been done by the Budget and an opportunity has been missed.
We have heard the Chancellor's first Budget in 1993. There may be a second bite at the cherry in the late autumn, but there is wide speculation that the right hon. Gentleman will not be in office then. Indeed, as I see things, the future of the Government is in question. No party can remain in office unless it can command a majority in the House, particularly on the main plank of its programme—Maastricht.
In speaking in Budget debates in recent years I have repeatedly emphasised the terrible problem of heavy unemployment. I have indicated what a waste it is and the damage that it is doing to the very fabric of society. The Government never appeared to accept that concept. Even now, they seem to be paying only lip service to it.
Officially unemployment has topped the 3 million mark, but the real jobless figure is more than 4 million. Therefore, the complacency of the right hon. Member for Guildford amazed me. To illustrate the severity of the position, let me point out that there are 27 people chasing every vacancy. For people under 25 years of age, unemployment in January was nearly 900,000, and that figure is rising. What chance have those young people got? Their lives are stunted from the word go. As to the long-term unemployed, those out of work for one year or more total more than 1 million. What a tragedy for so many people; they are thoroughly demoralised.
The Government moan about their borrowing requirement, but do Ministers ever stop to consider that it costs £9,000 a year to keep an unemployed person, which, in turn, means that unemployment is costing the taxpayer £27 billion a year?
Unemployment has social effects. It creates poverty, breaks up families, creates homelessness and ill health and leads to suicide. We are all vividly conscious of the ever-escalating crime rate, which is a constant worry to all decent citizens. Much of that crime is directly due to unemployment. The devil has certainly found work for idle hands and we now have a large alienated underclass.
Another major factor in that increase in crime is the breakdown in family life. Government policies should aim to strengthen the family unit, which is the basis of an orderly society. Putting people back to work would certainly help, but now we have the lethal combination of mass unemployment and a soaring crime rate. No wonder the morale of the nation has never been at such a low ebb.
In that context, the Chancellor delivered his Budget today. All he did was to hand out a few breadcrumbs. I appreciate that he does not have a magic wand. We did not expect him to cure all our major evils overnight and he has a huge deficit to contend with. Nevertheless, he has great powers and he had a great opportunity. The question is whether he rose to the occasion. The answer must be no.
Imposing VAT on fuel, gas and electricity is simply criminal. It will have a highly detrimental effect on the poorest section of community—old people. The announcement was a complete negation of the Government's election and many other promises.
One of the Chancellor's measures seems to be to cane the motorist. We are essentially a road-based economy and one does not need to be a Cambridge economist to realise that increasing the cost of transport increases the cost of almost everything. Not many months ago, the Chancellor assisted the motor industry by getting rid of car tax. The industry has responded magnificently. The principal redeeming feature of the economy in recent months has been the resurgence of the motor industry. February's


figures show that sales are up 16 per cent. on the equivalent month last year. The industry needs encouragement, particularly to develop its export trade, which can be so advantageous to our present adverse balance of payments.
We do not have car assembly plants in Wales. Nevertheless, the Welsh economy is now heavily reliant on the components sector, and to penalise the industry only aggravates and increases unemployment in Wales and elsewhere. I say to the Government, back the car industry because it can do so much to stimulate the economy and build a sound trading base, as those two industrial giants, Germany and Japan, realised long ago.
The building industry could do much to rejuvenate the economy and put people back to work. In the past month, there has been, admittedly, a marginal improvement in this sector but, overall, the building and construction industry is in dire straits. Building employers reckon that a further 100,000 jobs are at risk. Last autumn, the Chancellor released the receipts from the new sales of council houses, but only for a limited period. Much more is required. I am sorry that he did not introduce such a measure this afternoon. We urgently need a phased release of all capital receipts from the sale of council houses and land. Such a measure to help increase housebuilding, besides putting people back to work, would help to meet the pent-up need for social housing. Providing bed-and-breakfast accommodation for homeless families is far more costly, and only political dogma prevents the necessary action from being taken.
Likewise, so many empty council housing association properties need renovation. Many school buildings are urgently in need of repair. We need to regenerate local areas affected by the decline in manufacturing and in the coal and defence industries. Such measures would be a boost for the building and construction industry. We did not, I am afraid, hear any such proposals from the Chancellor this afternoon.
Another important aspect is training. Skill, after all, is the key to national competitiveness, and as a nation we are being left behind. Training opportunities for all who need them should be given a high priority. The British people are resourceful and, with the necessary skill training, a start could be made in rebuilding our manufacturing industry, which has been neglected for so long. A report that was leaked in recent days revealed that our manufacturing industry is in a parlous condition.
My hon. Friend the shadow Chancellor has set out clearly how such measures as I have briefly mentioned could be paid for—by imposing a public dividend on the excess profits of the privatised utilities, by closing tax loopholes, which are costing the Exchequer millions, and by maintaining tax on share transactions. To achieve recovery, we need emergency investment in the industrial and manufacturing sectors of our economy. That could increase exports, reduce imports and help to provide for a lasting recovery. Even the CBI's pre-Budget message recognised that recovery should be given the highest possible priority. The Chancellor has not met the nation's needs in that sense. He should go without further delay before he does so much more damage.

Mr. David Knox: I join my right hon. Friends the Members for Shropshire, North (Mr. Biffen) and for Guildford (Mr. Howell) in

congratulating my right hon. Friend the Chancellor on his third Budget speech. His first two Budget speeches were well constructed and to the point and today he maintained the high standards that he established on those two previous occasions. His speech was rather longer today and I join my right hon. Friend the Member for Shropshire, North in paying tribute to the stamina that he showed.
The House is indebted to my right hon. Friend the Chancellor for the style with which he presented his Budget. It was a difficult Budget, but he produced a skilful Budget in extraordinarily difficult and tight circumstances. I congratulate him warmly on doing so and look forward to his fourth Budget towards the end of the year.
I enjoyed the speech of the Leader of the Opposition very much. I think that it could be best described, in the word that Mr. Matthew Parris frequently uses, as a rant.
For many years the debate on the first day of the Budget was marked by speeches from Sir John Stokes and Sir Alan Glyn. Both of those gentlemen retired at the last general election and I am afraid that this occasion will never be quite the same for me now that they are gone. Nevertheless, the hon. Member for Newport, East (Mr. Hughes) is—as indeed I am—a veteran of these occasions. Indeed, Mr. Deputy Speaker, I believe that in a former incarnation you were as well. No doubt the hon. Gentleman and I will continue the tradition and be joined by others, including my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant), who has recently been joining us.
I welcome most of the proposals in the Budget. The measures which my right hon. Friend has introduced concerning industry, insurance and the environment will undoubtedly bring considerable benefits to this country. They are, however, very complicated and it would be wise to refrain from comment at this stage until one has had time to study them in rather more detail.
I welcome the further move towards the 20 per cent. basic income tax rate. Clearly, it was not possible to go very far in this respect today, but I am glad that my right hon. Friend was able to take another step in this direction. Whatever anyone may think, there is no doubt at all, as recent election results have shown, that a reduction in the basic rate of taxation is something that the people of this country want—and it is, after all, our task to respond to the wishes of our masters.
Despite the size of the public sector borrowing requirement, I am glad that my right hon. Friend introduced a neutral Budget today. It would have been very dangerous had he not done so, because it might have cut off expansion. I shall have more to say about this in a minute or two. It was rather ingenious the way in which my right hon. Friend managed to maintain a neutral Budget but nevertheless took steps which will ensure that the PSBR will be reduced in future years, by which time, we hope, economic growth will have restarted and the economy will be moving forward again. My right hon. Friend deserves considerable congratulations on the ingenuity which he showed in this respect.
I am glad that my right hon. Friend found it possible to introduce further measures to help the unemployed. As growth takes off, as my right hon. Friend very rightly pointed out, unemployment will continue to rise, and it is only right that measures should be taken, albeit of a


short-term nature, to try to ease the lot of those people who will be out of work over the next few months, and perhaps over the next year or two as well.
I was very glad that my right hon. Friend did not introduce value added tax on books and newspapers. Like most hon. Members, I have had considerable correspondence on this matter during the past few weeks. I am glad that at least in this respect I shall be moderately popular with my constituents for the next week or two.
I was rather less happy about the increase in the tax on petrol. I have a widespread rural constituency and my constituents rely on their motor cars. They will not be terribly happy, therefore, about having to pay an additional amount in petrol tax. On the other hand, I am pleased that my right hon. Friend has maintained the discrimination in favour of unleaded petrol as I feel that this makes a real contribution to improving the environment in which we live.
I was rather interested in my right hon. Friend's proposal concerning the self-assessment of income tax. This is an idea that was floated by the late Lain Macleod in the late 1960s. At that time there was a young man working in the Conservative research department. He later went on to become the Member for Kingston upon Thames and today is the Chancellor of the Exchequer. I wonder whether he got that particular idea from his days working with lain Macleod over a quarter of a century ago.
This Budget will not be judged in the medium or the long term by the specific measures that it contains, because they will be forgotten very soon. The Budget will be judged on the contribution that it makes to getting the economy out of a recession that has lasted for far too long and to reducing a level of unemployment that is far too high.
I thought that the measures that my right hon. Friend introduced in his 1991 Budget and again in his Budget last year were more than enough to generate growth and get us out of recession. Indeed, in the spring and summer of last year there was quite a lot of evidence, admittedly mainly anecdotal, that this was happening. Then everything came shuddering to a halt. The trouble was, and still is, a lack of confidence and I suspect that that owes a great deal to the uncertainty about the ratification of the Maastricht treaty.
Although I have no doubt that the European Communities (Amendment) Bill will eventually reach the statute book later this year, the delaying tactics of the Europhobes and others whose motives are purely party political are having a very damaging effect on the British economy. Their behaviour is creating grave doubts in the minds of our European partners and in other countries about our intentions and is undermining economic confidence and holding back our economic recovery. The early ratification of the Maastricht treaty would do more than anything else to restore economic confidence and enable us to move out of recession. And, of course, it would make my right hon. Friend the Chancellor's job much easier.
However, the ratification of the Maastricht treaty will not be enough on its own. If confidence is to be restored, there must be a certainty that the demand for goods and

services will increase and so lead to an increase in the demand for the labour to produce those goods and services.
That is why I was delighted that my right hon. Friend ignored the advice from some sources to increase taxation significantly in his Budget and to cut public expenditure. In the depths of a recession nothing would have been more foolish. Tax increases and public expenditure cuts would inevitably have resulted in a reduction in demand, which would have cut off the green shoots, pushed back the start of the recovery and made recovery much more difficult. The right time to increase taxes and cut public expenditure is when the economy is booming and looks like overheating. The wrong time is in the depths of a recession. Then, taxes should be cut, as the Chancellor cut them last year, and public expenditure should be increased, as it has been in the past two years.
The level of demand will be boosted over the next few years as a result of the devaluation of the pound during the past six months. British goods and services are now cheaper in export markets and foreign goods and services are now dearer in the British domestic market. This provides British industry and commerce with greater opportunities to export more and sell more at home and I hope that they are exploiting to the full the advantage that they now enjoy.
It will be some time before the beneficial effects of devaluation are reflected in the balance of payments figures; perhaps it may be as long as two years. But the effects on the level of demand in the United Kingdom should be apparent much sooner. I feel that the level of demand generated by my right hon. Friend's recent policies, including the Budget, should be sufficient to generate the necessary level of growth to enable us to move out of recession and to start growing once again.
I have already welcomed the measures announced by my right hon. Friend to tackle unemployment. They will help to ease the worst effects in the short term, but they will not deal with the fundamental problem. The long-term solution to the problem of unemployment lies in the demand management policies about which I have been speaking. Between February 1985 and January 1987, unemployment in this country exceeded 3 million. It then fell quite sharply, so that by 1990 it was slightly in excess of 1·5 million. Over the past three years, alas, it has risen again, and it is now just over 3 million. From 1945 until 1974 we had full employment. The level fluctuated a little, but unemployment exceeded I million only twice, and then only briefly. In 1955 and 1965, also very briefly, unemployment fell to the very low level of 1·1 per cent. of the working population, about one tenth of what it is today.
Unemployment did not start to rise when the present Government came into office. It began to rise in 1974, under the previous Labour Government, and has been at an unacceptably high level ever since. I do not think that the Labour Government or the present Government can be proud of their records on unemployment over the past 19 years.
In recent years, there has been a feeling that high unemployment is inevitable. It does no harm, therefore, to remind ourselves that for most of the post-war period the situation was very much better than it is now. The current level of unemployment shows how far we have moved from the high level of achievement of the 30 years


immediately after 1945. Nor does it do any harm to remind ourselves of the effects of unemployment, socially and economically.
Unemployment is socially divisive. It is difficult to have one nation, which is, after all, the principal domestic aim of my party, if 3 million people are out of work and if 1 million of those are long-term unemployed and have been out of work for more than a year. Lord Callaghan once said that the real division in our society is between those in work and those who cannot find work. Unemployment is also economically wasteful. If we are not using all the available labour, we are not maximising national output. It means that, as a nation, we are forgoing wealth which we could enjoy.
It is nonsense to suggest that demand has peaked and that there is no work available. We all know that we could consume more goods and services if we had the opportunity to do so. We also know that we could spend much more on social and public services. Potentially, there is plenty of additional demand for goods and services, public and private. The task facing us is to ensure that the level of demand is sufficient to utilise the potential supply of labour, capital and enterprise. That is the way back to full employment.
If a much lower level of unemployment is to be achieved and maintained, there must be pay restraint. In the past, there has been a strong tendency for the British economy to generate increases in earnings in excess of the increases in output, causing wage and salary cost inflation. The tendency has been especially powerful when the economy has been booming.
Until 1979, successive Governments tried to control excessive wage and salary increases by incomes policies. Since then, the determination of pay has been left to employers and employees and when the increases got out of hand and inflation rose the Government tried to brake those increases by demand deflationary policies.
Recently, although still too high, wage and salary settlements have fallen back sharply, almost certainly as a result of the recession. The Government rightly want a 1·5 per cent. limit on public sector pay this year and they hope that increases in the private sector will be of the same order. Few doubt that pay restraint is necessary at present but, if it is necessary now when increases are likely to be modest because of market conditions, surely it will be even more necessary when pay increases start to rise again as we move out of recession, as unemployment falls and as labour shortages reappear.
If we are to avoid having to brake back the recovery before full employment is reached, because wage and salary increases are out of control, consideration should be given to extending the attempts to restrain pay settlements to longer-term arrangements. If the Government are right to believe that low pay settlements in the public sector protect jobs—and they are—surely low pay settlements elsewhere in the economy will also protect jobs. Is not there a case for thinking again about incomes policies? Is not the right time now—in the depths of the recession—when the pressures for pay increases are at their weakest?

Mr. Bill Michie: I know that it is traditional to congratulate the Chancellor of the Exchequer. I shall do so because it is the tradition rather than because I believe that I should appreciate, or congratulate him on, what he has presented to the House.
The Chancellor made a very long speech—far too long. I was always told, in engineering research and certainly when I was a local government councillor, that if one did not have a good argument, one should make a long report. That is fair enough when dealing with reports: the way to get out of that is to do a fast reading course, get rid of all the rubbish and read only the facts. Unfortunately, a fast reading course does not help me when I listen to a long speech such as that which we heard this afternoon.
I shall not dwell on the speech for too long because much has already been said about it, but I am bitterly disappointed that there is to be value added tax on fuel, a fuel tax. That is perhaps the most cruel thing that the Government could do. I do not believe that everyone will be compensated through their benefits, as the Chancellor claimed. He knows very well that thousands of families will not qualify for such help with the fuel tax. In the past, we have discussed old people suffering from hypothermia and worried about whether they could keep warm and how we could help them. Now a dreadful tax burden is being placed on them, which will make matters even worse. I am very disappointed about that.
I am also disappointed about the fact that, despite some of the issues that the Chancellor raised, the message did not get across as to exactly why the country has been going downhill. The hon. Member for Staffordshire, Moorlands (Mr. Knox) said that it was due to the world recession, among other things. That is true, but it seems that it is never anyone's fault. I believe that it is partly the fault of the Government and partly the fault of the philosophy by which they live.
I do not believe that one can stand aside and let things happen; nor do I believe that high wages are the reason for depression and unemployment. There is a theory that high wages bring a nation to its knees, but I should like someone to explain to me why the countries of the third world, where people are paid peanuts for hard work, are not the richest nations in the world. It does not work that way. The problem is that we do not understand the difficulties that face us.
I started this week by visiting schools in my constituency and discussing further school closures, which are to take place because of a supposed lack of money or the standard spending assessment. The Government say that we must have training and a skilled work force. Schools are being closed, but the Government still expect to have a more skilled work force. Again, I do not understand the logic of that.
Local authority spending is being greatly reduced. The infrastructure around our towns and cities is falling apart, family life is disintegrating and crime is rising. What is the answer? The Government take more money out of the local economy, but I do not see the logic behind that.
More and more people are homeless, but, like many hon. Members, I receive letters from building companies who write to Back Benchers in sheer desperation asking us, for goodness sake, to ask the Government to do something because the industry is going to the wall. I did not hear much in the Budget which will help those people. The


Budget was a big disappointment on the local authority, education and housing fronts and, perhaps even worse, on the job front, which has already been mentioned. The Chancellor said that short-term prospects were not the answer. I fully understand what that means. One cannot throw money at a project and hope that jobs will be provided sooner or later and that new skills will suddenly appear. That has never been the case. I accept one or two points that the Chancellor made, including the fact that employers will get a subsidy if they employ someone who has been out of work for two years; in other words, one buys oneself a job with one's dole money. I welcome the proposal to help 100,000 people who are unemployed to start small businesses. That will be nice for the 100,000, but pretty poor for the 300,000 who have lost their jobs since the last election.
I welcome the proposal for 30,000 long-term unemployed people who may be able to go back into some form of education, but I am still worried about what sort of education they will get and what sort of training skills they will achieve.
I had a wry smile at another of the Chancellor's proposals, for a new community action programme for the voluntary sector which should help to provide jobs or opportunities for at least 60,000 people. I seem to remember that there was a very good community programme, created by this Government many years ago. It was so good that it was popular. It was not only popular but it created permanent jobs and good wages, but once it got to that level the Government scrapped it altogether because people were getting decent wages and decent training. I hope that the Government have learnt some lessons from the past and will create a community action programme that is beneficial, not just to the community but to the unemployed.
I come to the business of action for jobs and the reasons why our industry is in dire trouble. I echo the query raised by my right hon. and learned Friend the Leader of the Opposition: if there is such good news, why is it not published? Why have not the Government come out with a fanfare of trumpets to say that the whole of manufacturing industry is on the up? It has not been published and I assume that we have to suspect the worst: that the situation is not as good as the Government are claiming.
Skills cannot be introduced overnight. One problem that I have had over the past few years has been to explain to the Government and other hon. Members that one can shut a factory any day very quickly and disperse the skilled labour force on to the dole queues or elsewhere, but one cannot recreate a factory overnight. Once those skills have been lost they cannot be found among those standing on street corners. That is not the way in which engineering skill and technology work. Surely this Government must have got that message by now. We are talking about a 14 per cent. reduction in real training for jobs. Statistics that I have here show that Government spending on training, at constant prices, was £2·4 billion in 1990–91. It fell to £2·1 billion in 1991–92 and remains at the same level this year. It is planned to remain at £2·1 billion for 1993–94, but will fall to £2 billion in the two years after that. In real terms, spending this year has therefore been reduced by £300 million on 1990–91 levels, a reduction of 14 per cent., yet

the Goverment are still claiming in this Budget to be increasing training and education for the country's future prospects. While we have had this reduction in training, unemployment has risen by about 87 per cent.
I said at the beginning of my speech that I feel no enthusiasm about the Chancellor's speech. It strikes me that the Government are still slow in learning that, in order to have a nation that is wealthy, it has to be a nation that is working and is competing in the world in technology and new sciences. The only way in which the Government or the nation can achieve that is by long-term investment and long-term planning.
Our industrial base is in tatters. I walk through some parts of my constituency and see the places where I used to work and where my father used to work where there is nothing but dereliction. There is nothing in the Budget which will cure that either overnight or in the long term.
As a plug, Mr. Deputy Speaker, I draw the attention of the House to my early-day motion No. 1540 entitled "Technical and Engineering Capability and the Vulcan Bomber". Basically this expresses the hope that the last of the Vulcan bombers should stay in this country because it is a demonstration of the engineering and design skill of this nation in the past. Many of those designers and engineers are still alive today and some are still fairly active. I say that as one who had the privilege of being near a Vulcan bomber for many years, many years ago, and as one who has a soft spot for it. We should keep it, as I said in this early-day motion, to demonstrate to our future generations what skills we had in this nation and to inspire them and, I hope, this Government to invest in a proper diversification programme in order to retain and retrain skills for peaceful products.
It is no good saying that we have no cold war at present and therefore we cannot afford to invest in defence and that we have no idea of how to invest in peace.
It reminds me of the story I heard once about creating jobs in shipbuilding. An old man suggested that we should build luxury liners so that 4,000 old-age pensioners could be put on those luxury liners in the winter months—especially now that we are going to have a fuel tax—with 2,000 or 3,000 staff to look after them and let them go floating around to warm climates. The shock horror is that no nation can afford that sort of logic, but when one looks at it we have the Ark Royal and other large warships with thousands of highly paid, highly skilled and highly trained personnel floating around the world and we feel that to be a necessity. It may be a necessity, but if the will is there to do it for time of war, which we hope never comes, many of those ships would be lost in the first year. Surely with the right will we can create products for peace and protect our skills and our jobs for the future.
I must make one point on a subject on which I thought the Chancellor did not dwell: putting pressure on the banks. Many small businesses, as most hon. Members will know, have complained about the way in which banks have treated them in the past two or three years. I hope that sooner or later we shall have a Government who will get a grip on the banks and protect some of our small companies.
There is plenty of money in this nation and I hope there always will be. If one asks where one finds all this money, it is amazing how the Government can find money for their pet projects like defence; how they could find money on black Wednesday when billions of pounds went down the


pan because of the stupid ERM fiasco and also when billions were spent trying to prop up the poll tax system created by this Government and scrapped by them.
No one will convince the Opposition that there is not enough money to invest in the nation and bring it back to the top of the industrial nations ladder, where it rightly belongs. We should stop frittering away our taxpayers' money on stupid projects proposed by the Government which are built on bias and prejudice. We should instead invest in this nation, which I believe will once again be one of the best industrial nations in the world.

7 pm

Sir Anthony Grant: The hon. Members for Sheffield, Heeley (Mr. Michie) and for Newport, East (Mr. Hughes) made what were from their point of view sincere speeches, even if they contained an excessive degree of gloom. I have no doubt that we shall hear persistently from the Opposition Benches tales of gloom and woe.
I am extremely fond of the hon. Member for Newport, East, with whom I have often crossed swords in debate. He is a splendid constituency Member who reminds me of another great Welshman, Lord Tonypandy, who once told me about a report that appeared in a local Welsh newspaper of a funeral. The noble Lord recalled that the report read, "As the coffin was being lowered, the vicar, the Reverend Eli Jones, slipped, fell into the grave and broke his leg. That cast a gloom over the whole proceedings." That reminds me of the gloom that can be spread by the speeches of Opposition Members, even though it is wholly inappropriate to our economic recovery.
The Chancellor has for a long time been unjustly maligned. I have no hesitation in congratulating him on the way in which he has resisted much unnecessary abuse and has introduced a skilful and relevant Budget. Let us not forget some of the difficulties that he faced when he took on the task, including a world recession and the need to deal with some mistakes in monetary policy that had been made since 1987.

Mr. Bill Michie: Nobody admits mistakes.

Sir Anthony Grant: I hear what the hon. Gentleman says. I assure him that I admit my mistakes. The mistakes of which I speak were egged on and connived at by the Opposition parties, which encouraged the sort of action which led to the difficulties that my right hon. Friend had to face. That in turn led to our needing an over-rigid monetary policy which resulted in great suffering among, in particular, two sections that were least able to deal with it. I refer to the construction industry and the housing market and small firms, about which I shall say more shortly.
I am particulary glad that, in terms of political correctness, it is now recognised that the economy cannot be dealt with purely by monetary means and that we must also adopt fiscal policies. I am glad that we have returned to that more sensible and flexible system. As a result of the severe problems that the Chancellor faced on taking office, there was a total lack of confidence in business.

Mr. Michael Spicer: My hon. Friend said that the Government's mistakes had resulted from monetary policy being too rigid.

Sir Anthony Grant: indicated dissent.

Mr. Spicer: I must have misunderstood my hon. Friend. The problem was that they abandoned monetary policy in favour of fixed interest rates. That was the mistake to which my hon. Friend should allude.

Sir Anthony Grant: Immediately after black Wednesday, when stock markets throughout the world seemed to collapse, there was over-reaction everywhere, particularly in this country. A few Conservatives of great financial rectitude—including perhaps my hon. Friend—did not take the same view, but the Opposition parties were in favour of interest rates being lowered unnecessarily. I, too, was guilty of favouring such a policy and I accept blame in that respect. We were obliged later to have an over-rigid, over-intense interest rate policy which reached as high as 15 per cent. before we entered the exchange rate mechanism.
I will not pursue that now, though I am sure that my hon. Friend the Member for Worcestershire, South (Mr. Spicer) will do so if he has an opportunity to speak in the debate. We now recognise that not just monetary policy but a mixture of monetary and fiscal policy is essential to run an economy such as ours. So I welcome the thrust of the Chancellor's strategy.
I am sufficiently long in the tooth to remember the time when, in 1967, the then Labour Government had to devalue. In the following Budget, introduced by the present Lord Jenkins of Hillhead, we had the biggest increase in taxation anybody could remember. He was cheered to the echo—I was in the Chamber at the time—for taking that action. So the Labour party cannot teach us anything about increases in taxation.
At that time, Lord Jenkins emphasised that recovery following devaluation should be export led. The principle holds good today. The difficulty is that, at a time when we require an export-led recovery, the countries of Europe and Japan are suffering from recession. That makes our export effort more difficult but even more vital.
I welcome the Chancellor's measures on export credit guarantees. I recall from the days when I had some responsibility for that issue how the credit game was played by other countries and we were easily deceived. I am glad that the Chancellor is aware of that and is introducing measures to improve credits for our exporting industries.
As Opposition Members are wholly committed to the Rio environmental decisions, perhaps they will explain how they would implement them. What measures would they introduce? We await with interest their answer in due course. They must not dodge the question. If they try to do so, my hon. Friends and I will persist in repeating it.
I agree with my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox) that unemployment is the gravest problem we face. It also represents a major burden on the public sector borrowing requirement. In the 1970s, about which my hon. Friend spoke, I had some humble responsibility in the then Government, when the unemployment total reached I million. The hon. Member for Bolsover (Mr. Skinner) thumped the Dispatch Box hysterically and created a disturbance of monumental levels.
My responsibility at the time was for the regions. When we were unceremoniously thrown out of office in 1974 by an ungrateful electorate, unemployment had come down


to about 700,000. Immediately Labour took over, it went up, and within a year it reached 1 million. There was then not a peep from the hon. Member for Bolsover and his hon. Friends. So we need no lessons from the Opposition about unemployment. Even so, it is a grave problem and I welcome the measures that have been announced to deal with it.
Only the revival of the small firms sector will have a true long-term impact. Large firms have already shed labour during the recession, and I fear that their labour forces will never return to their previous levels. Small firms have the resilience and flexibility, especially in the county of Cambridgeshire, to respond to the measures that the Chancellor has wisely introduced.
I was almost the first Minister to be responsible for small firms. The late lamented Lord Ridley had had that responsibility for about three weeks before I came to that office. In those days we clearly recognised that the future of the economy in a free market society lay with a healthy small firms sector. After we left office, the whole thing declined under Labour rule, and nothing was done to help small firms. The hon. Member for Bradford, South (Mr. Cryer) was the Minister responsible, and small firms languished under that regime. Later, when the Conservatives took office again, they were rediscovered, as it were, and I hope that we will retain that attitude.
It is essential to small firms—indeed, for the whole nation—that inflation is kept under control. The Chancellor and the Government can take pride in the way in which they have handled the problem of inflation. Small firms also want low interest rates. I have always wanted lower interest rates because I detest a high interest rate policy. Although I want pressure on them continually to be downwards, we have probably reached the stage when a degree of stability is justified. Small firms would now welcome stable inflation and stable interest rates. They wanted, and have now obtained, help with investment, and assistance with the corporation tax and VAT thresholds. They sought assistance with capital gains tax and inheritance tax and, above all, with the wretched uniform business rate. My right hon. Friend the Chancellor noted all that, and I congratulate him on his sensitivity in recognising the needs of the vital small business sector.
In particular, I am glad that he recognised the difficulties of small businesses in grappling with VAT and Customs and Excise. I have received endless numbers of letters about the ferocity with which the Customs and Excise administer their task. Small firms have described them as the Gestapo and the KGB. That is probably an exaggeration as they are worthy and honourable civil servants, but they have been over-zealous and draconian. I am pleased to see the changes that my right hon. Friend has announced.
One problem that has not been addressed is that small firms are greatly affected by the credit game—or indeed the credit racket. Large firms abuse smaller suppliers and contractors by taking their credit to the limit, causing considerabe cash flow problems. When I was in office I said that it was disgraceful, but larger firms were not prepared to admit anything until we found evidence that it was true. I was then thrown out of office and that was the

end of that. However, the problem still exists. It should be possible to find a legislative format to bring some sanctions to bear.

Mr. Mark Wolfson: Does my hon. Friend agree that there can be a damaging and dangerous domino effect when large, principal contractors are slow to pay so that three or four sub-contractors down the line are all dependent on the money coming through?

Sir Anthony Grant: My hon. Friend is absolutely right. In the absence of legislation, will Treasury Ministers and my right hon. Friend the President of the Board of Trade think carefully about the problem and emphasise to the large industries with which they are always dealing that it is in the nation's interest that they should pay their bills on time and ensure that small firms, which they were once, have a reasonable cash flow?
Manufacturing industry has made remarkable strides since 1979 when we were bottom of the productivity league of G7 countries. We are now at the top. Output and investment have increased and are increasing. Progress in industrial relations has been quite remarkable. As my right hon. Friend the Chancellor pointed out, not since Victorian times or thereabouts have there been so few strikes. We can be justifiably proud of that. However, my right hon. Friend the Prime Minister was right to point out that industry requires more attention in the present economic climate and in future.
Compared with our partners in Europe and elsewhere, we have not paid much attention to manufacturing as we should. It is a matter of national culture rather than Government policy. If we were to ask anyone in the street in Britain what we meant by an engineer, most people would think of a grubby chap in overalls who repaired cars. However, the same term in Germany, Japan and elsewhere means someone who is held in high esteem and occupies an important position in industry and in the company. We have to move towards that attitude.
In the days when we were trying to encourage regional policy, I sought to encourage brighter people to run manufacturing industry in the north-east and the north-west. The difficulty was that the rewards, the prestige and the ease of work were greater for the brightest people if they went to the City of London to do no doubt very important paperwork in the service sector. We have to address that problem, and I would like to see the manufacturing sector in general and engineering in particular given a much higher profile.
My right hon. Friend the Chancellor has set the correct course for the future. He has tiptoed delicately between financial rectitude and the need not to damage the delicate flower of recovery. The small business sector will respond most vigorously, especially in East Anglia and Cambridgeshire.

Dame Elaine Kellett-Bowman: And the north-west.

Sir Anthony Grant: And the north-west, as my hon. Friend says.
All that is needed now is that mythical word, confidence. Confidence can be achieved only by stability and, with great respect to my hon. Friend the Member for Worcestershire, South, small businesses want certainty. Therefore, I echo the remarks of my hon. Friend the Member for Staffordshire, Moorlands. The sooner we get


over the uncertainty about Maastricht and our situation in Europe, the better it will be for everyone. The CBI, the chambers of commerce and all the industrialists with whom I have spoken want it over and done with so that there is certainty for the future. I hope that that will soon be the case. If it is, I look forward with great confidence to the future of our economy, thanks to the wise management of my right hon. Friend the Chancellor.

Dr. Jeremy Bray: The hon. Member for Cambridgeshire, South-West (Sir A. Grant) asked what the Opposition would do about the undertaking under the Rio convention to reduce carbon dioxide emissions. I offer one simple device off the cuff. If VAT on domestic fuel and power is considered the appropriate solution, it would be perfectly possible to make that revenue-neutral on VAT by reducing the average rate, so that there was no net increase in cost to the consumer but there was a switch in taxation to discourage people from using so much fuel and power. However, the Treasury do not think that way. They are concerned not with Rio but with the biggest single Budget measure—the £2,300 million that they are taking out of households by levying VAT on fuel and power.
The Chancellor faces a difficult situation, but he has only himself to blame. First, he is simply not believed by the market, by his colleagues in Government or by the House. We have seen a public facade building up in his defence, behind which his hon. Friends will be able quietly to knife him in the back. There were and still are good reasons why a Chancellor who trimmed his sails, changed course and abandoned his policies on the scale of black Wednesday should feel he had to go. The job has to be held by someone who is believed. No amount of special pleading about being overwhelmed by speculators will do—that is always the story. In any case, the Chancellor was maintaining that the economy was not vulnerable to the speculators.
Secondly, the Chancellor represents a Government who made the most colossal errors of judgment by unleashing the credit boom of the late 1980s. There were plenty of warnings, not least from within the Treasury, and even from that much maligned Treasury model, as I showed at the time, but they were ignored.
Thirdly, having suffered such wounds, the Chancellor is devoid of all principles. I mean principles not in any moral or high-minded sense, but simply in the sense of relating one day's improvisations to the next to avoid them cancelling each other out.
The Government used to have a medium-term financial strategy. It survives as monitoring ranges on a number of variables which do not include the most important one, which is the exchange rate. A target for the increase in tax yields three years ahead is offered up as a fetish to the markets of £10·5 billion, but elsewhere in the financial statement is the estimate that the error in forecasting the PSBR for the coming year is some £6·5 billion. For the error three years ahead, there is no estimate, but it must be far more than anything like the £10·5 billion that the Chancellor is offering up.
The Chancellor is unlikely to argue that no strategy is preferable to a wrong strategy, but others not saddled with the Chancellor's mistakes can stress the importance of having a workable strategy, and that is what I shall try to

set out. A workable strategy is a political necessity. People need some sense of where the economy is and where it is going if they are to behave sensibly in their personal interest and that of their families. People do not believe the Chancellor, so they are not prepared to train for the long-term, to invest or to plan for the future. Still less are they told by the Chancellor that their real incomes today have grown faster, and are now some 10 per cent. higher, than the economy can afford. We also need a strategy to get us out of the difficulties we are in and to keep us out.
I say to my right hon. and hon. Friends that there is no easy way out for us. The popular ideas of Keynesian demand management provided a workable rule for correcting small excursions from full employment in situations where there was a sheet anchor against inflation in the shape of Bretton Woods and a stable valued dollar. With the extreme imbalances that we have today of unemployment and the current account and public borrowing, we have to look deeper.
Nor, I say to my hon. Friend the shadow Chancellor through my hon. Friends on the Front Bench, is it sufficient for us simply to advocate the supply side measures of more investment and training, vital though they are. The arguments about the imbalances are not part of the detail that can be worked out only in the circumstances as we find them as we approach the next election. While politically it is right for us to point out that we are suffering from Tory errors and that it is a Tory responsibility to deal with them, we have to show that we know what the imbalances are and realise their full seriousness, and show ourselves more competent to deal with them when it comes to be our job to deal with them.
What, then, of the design of a viable strategy? What does it mean in terms of immediate policies? In general terms, the answer is obvious: it has to be aimed at restoring and maintaining the balances—unemployment, the current balance and public borrowing. It should be prepared to use all available instruments, down and up—direct and indirect taxes, interest rates, funding and public expenditure—recognising that they all have an economic and political cost. The strategy may express the policy priorities of the Government, but even with all the instruments, the freedom of movement for a Government to express their priorities is severely circumscribed, and the greater the imbalances, the less scope there is for indulging those Government priorities.
All that is so much waffle for politicians and economists educated in a purely verbal tradition, who have never been taught to add up, never mind multiply. What happens is that one verbal simplification is pitched against another, the one adopted inevitably meeting disaster, leaving the sponsors of the unadopted simplification claiming that they had the right answer and believing that they were right.
Despite the all-too-obvious weaknesses and failures of economics and economists, a great deal of progress has been made in technical analysis of economic management in the past 20 years. Technical analysis is a good servant but a poor master. It is in the interests of Ministers, journalists and gurus to rubbish it, because they find it difficult to master. It is difficult to master, but that is part of their job. What matters is whether it works. Does it point to practical policies that impress politically?
It is a measure of the Chancellor's stupidity that he has allowed the Treasury's capability for technical economic analysis to degenerate in recent years. Any half-sensible


Chancellor makes sure that he is as well equipped as anyone else in the game. I welcome the panel of independent forecasters, but behind the scenes it only shows up the increasing weakness of capability within the Treasury.
Of the three principal instruments that the Treasury should have, the main one is the characterisation of the national economy and its behaviour—the Treasury model. That model has been stagnant now for five years. It has grave, well-known errors within it, and nothing is done to correct them from year to year. There is no treatment within the Treasury of the global economy. The work that was once done there has now been farmed out to the National Institute of Economic and Social Research and to the London business school, and they run the international model used by the Treasury. Therefore, the Treasury inevitably does not fully understand all its characteristics.
Finally, when it comes to characterising the efficiency and performance of industry, the DTI may bleat until the cows come home and officials in its innovation unit may produce a report—only a few weeks ago, those officials told me that they expected it to be published—but it is useless them bleating in that way if they cannot characterise the impact of the dire situation of manufacting industry on the economy as a whole. The Treasury has no means of listening to such arguments.
Modern economics treats economic management as a game between different players, with different interests and capabilities. Monetarist doctrine was built around ideas of expectations. That gave way to concepts of commitment, learning and credibility. My favourite is a recent Federal Reserve Board working paper on "Rational Addiction with Learning and Regret". I am not too sure about the rational bit for the Government, but otherwise it is a strategy that I should have thought would appeal to them.
It is not necessary to go into the technical arguments. What is necessary and possible is to point to the broad nature of the conclusions. The imbalances are so large that, if they are not corrected, they will get worse. They are also so large that it is irrelevant to argue whether unemployment should be 2 or 4 per cent.: it should be a great deal less than 10 per cent. It is irrelevant to argue whether the current balance should be allowed to stray over 2 per cent. of GDP: it should be in surplus in the depths of the recession. It is irrelevant to argue whether public borrowing should exceed the 3 per cent. Maastricht criterion: it should not be heading over 8 per cent., even in the depths of a recession. Inflation is a scourge, and if it is not kept low, it runs the danger of becoming south American. However, low inflation has no virtue on its own if it is achieved at the cost of wrecking the other essential balances.
The trouble with arguing that we must deal with those structural imbalances, but not yet, is that they will get more difficult and painful to deal with later. They cannot be corrected overnight, nor even within five years. We can make a start now and, by being seen to make a serious start, set going the virtuous circles of increasing investment, confidence and stability.
For each instrument, we must ask how much it can contribute to improving one balance without damaging the others more. It is a matter of analysis. Let there be

argument about that, and let us hear the argument. The panel of independent forecasters could provide such material, and the Treasury could match it. However, having looked at the evidence, my judgment is that an increase in income tax on those in work would help public borrowing more than it would harm unemployment. A further reduction in interest rates would weaken the exchange rate, and the sheet anchor against south American inflation, more than it would help investment and employment. An increase in Government investment would help employment and competitiveness more than it would harm public borrowing.
Then the argument moves on to the detail of the instruments—whether they be tax rates or allowances, and what conjuncture of relative interest and inflation rates, and what kind of public investment, we should have. The dynamics of policy must be set out, showing how policies will adapt to changing circumstances while pursuing consistent objectives in a consistently maintained strategy. No such thinking goes on in the Treasury today. Treasury people do not even attend the conferences at which such policies are argued out.
At the same time, of course, vigorous supply side measures are needed—in the sense not of lower taxes but of greater skills, better quality, greater appeal and enhanced capacity. That is a matter not of subsidy and second-guessing, but of looking for the features of company finance, corporate control and competition that have so weakened British manufacturing, or have never allowed it fully to develop.
None of the tax measures that the Chancellor today announced to bolster the corporate sector, especially small firms, addresses the differences that are so inescapable when we compare the position of small and medium-sized manufacturing enterprises in this country with those in Germany.
The Select Committee on Science and Technology has just returned from an examination of industrial competitiveness in Germany—talking to the Government, and visiting firms and research institutions. The remarkable fact is that in Germany firms bearing names such as Bosch, Diesel, Zeppelin and so on are all still there today, but they are booming. They maintain high research budgets, and increase them when profits fall. In contrast, the Chancellor was trying to make it easier for the entrepreneur to sell out of his company. That is the last thing that a German industrialist would do; yet here we are facilitating precisely that weakening of control and commitment that underpins the strength of the German engineering industry.

Mr. Alan Duncan: Is the hon. Gentleman not taking an over-rosy view of the German economy at the moment? Mercedes Benz has just announced that it intends to lay off 30,000 people, Porsche has suffered a reduction of about 80 per cent. in its exports, and the German machine tool industry is all but in a state of collapse. The rosy picture that the hon. Gentleman paints is rather inaccurate.

Dr. Bray: The German unemployment level is about half that of the United Kingdom, and the average income in Germany is a great deal higher than it is here. The hon. Gentleman is confusing the short-term situation with the underlying strengths of the German economy. The same


goes for the Japanese economy. The hon. Gentleman really ought to go and look at those economies at first hand.
Judged by the criteria of what a strategy should be like, the Chancellor's Budget lacks perspective on the severity of our problems, and any sense of strategy. It is a rag-bag of expediency, put together in a futile bid to save his own political skin.

Mr. Michael Spicer: I have been in the House for almost 20 years, and one of the coincidences over that time is that when I have been on the Back Benches., more often than not I have followed the hon. Member for Motherwell, South (Dr. Bray) in such debates.
I do not know whether I should reveal this, but the hon. Gentleman and I share what could be called a professional interest and experience in the rather tricky, if not dreary, business of econometric forecasting. I was involved with that many years ago, and I know that the hon. Gentleman was, too. Indeed, it was out of that experience that he created the requirement for the Treasury to publish forecasts, as it now does.
I admit that I have moments of enormous gloom about this forecasting business, but I have to accept what partly lay behind what the hon. Gentleman said—that it is still necessary to bash on with the forecasts, if only because it is self-evident that changes in monetary policy and interest rates have their full impact two years out. So, whether one likes it or not, one has to anticipate what the effect of a particular policy change will be two years out.
I begin what I want to say by agreeing—perhaps surprisingly—with the opening remarks of my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant) in praise and support of the Chancellor of the Exchequer. My right hon. Friend has not only comported himself with great stamina today, but has dealt extremely courageously with the enormous torrent of criticism and personal abuse that he has suffered over the past few months. I put on record my personal respect for the dignified way in which he has responded.
I say that despite the fact that I am someone whom I believe the Chancellor has in the past called a "moaning minnie" and a "siren voice", for advocating lower interest rates, for reasons that I have mentioned, two and a half years ago. At that point it seemed to me that, two years out, high interest rates would have the effects that we see now. The hon. Member for Motherwell, South, too, said that interest rates should have been lower then, and I believe that my hon. Friend the Member for Cambridgeshire, South-West said the same. However, I do not believe that either of them gave any reason why interest rates were kept high.
The reason, self-evidently, was a policy of giving priority to exchange rate management, as opposed to the management of monetary policy in the interests of this country. That is the exact opposite of what my hon. Friend the Member for Cambridgeshire, South-West said. The problem was not too rigid a monetary policy but exactly the opposite—an abandonment of monetary policy.

Sir Anthony Grant: rose—

Dr. Bray: rose—

Mr. Spicer: I have prompted two hon. Gentlemen to intervene. I shall give way first to my hon. Friend, and then to the hon. Member for Motherwell, South.

Sir Anthony Grant: I remind my hon. Friend that interest rates reached their highest level before we entered the exchange rate mechanism. They then went solidly down, whatever other criticisms one may have.

Mr. Spicer: I am glad that my hon. Friend has raised that point. The process of informally shadowing the deutschmark and having an informal fixed exchange rate started two or three years before we finally formalised the situation by going into the exchange rate mechanism. We should have learnt by the mistakes of the previous two or three years where the problem lay.
For a while, interest rates were too low and we had inflation, which was caused by the fact that we were gearing up to the German economy and giving greater priority to our exchange rate policy than to monetary policy. That was a continuum of what had been going on for three or four years, and I am glad that my hon. Friend has reminded us that the process goes further back than our entry into the ERM.

Dr. Bray: I do not believe that I advocated lower interest rates two years ago. When the economy has been put into a grossly unstable situation, one has to take action to correct that. The mistake was made in 1987. Lord Lawson well describes in his book how the crash on the stock exchange led him to reduce interest rates at a time when all the signs were that both interest rates and taxes should have been increased.

Mr. Spicer: That may be one interpretation of events. Another—which has the merit of following the way in which the policy was pursued after 1987, through 1988 and 1989—relates that monetary policy, in so far as it existed, was determined to maintain a certain parity within exchange rates, especially against the deutschmark. I believe that that is how most commentators and historians now view that policy, which was maintained until white Wednesday last September, when we came out of it. I shall deal with that in a moment, if I may.
The Budget deals with two issues that I believe are interrelated—the deficit, and growing unemployment. Those two issues are related because they share the same derivative—low growth over the past two or three years. Indeed, so low has growth been that it has been negative by 4 per cent. over the past 30 months.
As I have said, that low growth rate has been caused by excessively high interest rates, which in turn were caused by a policy that placed greater priority on exchange rate manipulations for many reasons relating to Maastricht and the policy in Europe. Replying to what my hon. Friend the Member for Cambridgeshire, South-West said about confidence, one of the essential requirements now is continuity of policy.
We must learn the lesson of the past six years, of putting an exchange rate policy and a determination to move towards a single currency in Europe above the direct monetary interests of this country. We should perhaps have learnt that lesson by the 1930s, when we tried to link our currency to the United States' economy through the gold standard. That did not work. In fact, it was a disaster. However, we tried it again, although we have now stopped


for a while. The greatest boost to confidence would be to state quite clearly that we are now going to manage our economy in terms of its own requirements.
At present, the British economy requires sustained economic growth. That growth, as my right hon. Friend the Chancellor of the Exchequer said, requires a relaxed and easy monetary policy. He said that his narrow money target was zero to 4 per cent., and that the target for M4 was 3 to 9 per cent. Most people would say that the narrow money target is within the band, although, as my right hon. Friend the Chancellor said, at the higher end. However, in respect of broad money, which many people believe is the crucial factor in getting the economy moving again, most analyses show that it is still very low, if not still negative. It certainly was negative until very recently.
It is clear that the basic policy parameter and confidence factor to which my hon. Friend the Member for Cambridgeshire, South-West alluded requires an easing of monetary policy. The objective is also clear: to create such substantial, steady and progressive growth that unemployment will fall, causing the totality of benefits to reduce, the tax take to rise and the deficit to be addressed.
My right hon. Friend the Member for Shropshire, North (Mr. Biffen) made a very interesting point earlier in that context. Indeed, the hon. Member for Motherwell, South may have alluded to the same point. My right hon. Friend said that one of the problems with trying to generate employment at the moment is that there is a discontinuity between output and its effect on employment. We may be going through a new industrial revolution, particularly affecting the services sector. Investment seems to be causing unemployment rather than employment. We need at least 2 per cent. growth simply to keep steady in terms of employment levels.
We are experiencing enormous strides in productivity at the moment. It may be argued whether that is because we are at the back end of a recession or because there are substantive industrial revolutionary effects, and that we are entering a new phase. However, it seems that we need about 2 per cent. growth just to stay steady in respect of employment levels. In order to bring down unemployment, we will have to generate growth levels that we have not been able to sustain in the past. The task is rather enormous. We must aim for above 2 per cent. simply to reduce unemployment from its present rate.
That requires an investment culture and a substantive investment procedure from now to the distant future which will create and expand jobs as opposed to just replacing labour for capital. I believe that such an investment culture has three ingredients. My hon. Friend the Member for Cambridge, South-West and my right hon. Friend the Chancellor of the Exchequer have already alluded to the first of those ingredients. The first ingredient is good labour relations.
Undoubtedly, one of the great gifts of the Conservative Administrations of the 1980s was to provide for stable, sound and good labour relations. The figures that my right hon. Friend the Chancellor referred to earlier are remarkable. We had a better strike record in the last year than we have had for 100 years. That is a tremendous contribution and of enormous importance to investors, particularly those considering investing from abroad.
Foreign investment must be added to the massive investment that will be required to keep pace with the rate of unemployment.
The second ingredient is the continuation of a liberal trading policy, and this is where I become so concerned about our obsession with trading with Europe. Of course it is important that we trade with Europe. It is important that we have open trading relationships with Europe. However, as has been said several times today, Europe will, into the foreseeable future, be a rather slow growth place with which to trade.
Leaving aside the fact that we trade typically £10 billion per annum in deficit with Europe, the fundamental point is that, unless we are very careful, we will lock ourselves into a political union governed by a protectionist philosophy.
The great thing about Britain, our enormous advantage and the reason why we have had such investment in this country over the past 10 years is not that we were going to join a political union; in fact, quite the reverse. Our advantage has been that we stood on a bridge between Europe and the rest of the world, because we had a liberal trading policy. Companies could come here in the knowledge that they could trade both with Europe and with the growth areas of the world, which in the next few years may be the United States, and which will certainly include the Pacific basin.
We have the largest and the third largest international airports in the world because we happen to be at the crossroads of much international trade. The fact that this country is a bridge between continental Europe and the other great trading sectors of the world is an enormous advantage.
If we are to maintain in future the kind of investment from abroad that we have enjoyed in the past, we must maintain open trading policies and our relationships with the rest of the world. We must continue to act as a bridge between Europe and the rest of the world.
It is wrong, and the converse of the truth, to say that we encourage jobs by joining a protectionist, political union in Europe. Quite the reverse: the jobs come because we are a bridge between Europe and, outwith Europe, hopefully with the rest of the world.

Mr. William Cash: Did my hon. Friend notice the quite extraordinary and outrageous survey by the CBI which it sent to Members of Parliament and to peers, which stated that inward investment to this country from the top Japanese and American companies would be adversely affected if we failed to ratify the Maastricht treaty? All the points that my hon. Friend has made so validly were completely undermined by the extraordinary parliamentary briefing, which bore very little relationship to the report actually submitted to the CBI. The CBI put its own spin on it and gave the impression that, by failing to ratify the Maastricht treaty, we would jeopardise inward investment. Those companies quite clearly stated in the report that that was not the case, and that it would make no difference at all.

Mr. Spicer: I am glad that my hon. Friend makes that important point. I saw the press reports at the weekend. Many canards have been spread about all this, not only in Britain. We are told that, through political union, every country will get more jobs. The Danish Government are


using the argument that political union will create more jobs. It is suggested that every country in Europe will have more jobs as a result of political union.
Britain will get the jobs if we are part of a wider trading movement which pervades the world.

The Economic Secretary to the Treasury (Mr. Anthony Nelson): I endorse my hon. Friend's point about the importance of trade with countries outside the European Community. Of the £1·3 billion of extra Export Credits Guarantee Department cover announced by my right hon. Friend the Chancellor today, a great majority will be in developing countries, in which we are up to our limits in terms of cover. Many major projects and export development opportunities lie in those countries. I am sure that my hon. Friend will join me in welcoming that.

Mr. Spicer: I certainly welcome the concept of putting ECGD on a par with other countries. I also welcome the proposal to make it cover other countries. However, unless I misheard him, my hon. Friend made a specific point about developing countries. Our relationship with developing countries is important, but I was referring to linking in to fast-growth parts of the world. I take my hon. Friend's point.
My third point is the real guts of what I want to say. The third and most important characteristic of a country which wishes to attract the massive investment which I have said we shall require merely to keep pace with the present rate of unemployment is low taxation. It is on taxation that I have some comments to make about the Budget.
I am pleased that my right hon. Friend the Chancellor of the Exchequer has found it possible to focus more on indirect taxation than direct taxation. It is magnificent that he has set the target of reducing the base rate ultimately to 20 per cent. That has to be right. He is right to maintain the rate of direct taxation and to have various measures around it which relate to business.
I am worried about one danger. I do not say that the Government have fallen into it yet, but I have a lingering worry. It will be made clear when we relate expenditure and revenue in one Budget. Of course the Government are right to have combined the Budget and the autumn statement. Until we have one Budget, it will be difficult to say clearly whether we have allowed expenditure to get out of control.
I am concerned that, in our fiscal policy, we ensure that our expenditure meets the revenue that we have available and not the other way round. I want to see the revenue determined first; we should then fit the expenditure into what we can afford. If revenue starts to chase up expenditure—that is the danger—a dangerous ratchet effect can be created. Then more expenditure is chased by higher taxation in the interests of sound finance.
We reach a point that my right hon. Friend the Chancellor rightly said he wanted to avoid, at which the wealth-creating private sector is squeezed out. He was right to say that not Whitehall but the private sector ultimately creates new jobs. In order to allow the maximum private sector investment from which growth must occur, we must ensure that public expenditure is brought into line with what we can afford as a nation. That means that it must be brought into line with low taxation.
Once we have growth, of course, the tax take increases, and we enter a benign cycle. We have more money for

hospitals and public expenditure. However, it must be that way round. We shall not know until the autumn whether public expenditure is properly under control, but it must be that way round. Therefore, the broad policy must be one of public expenditure related to what we can afford and in current circumstances an easing of monetary policy.
Above all, we must have a monetary policy which reflects the future requirements of the country, not a monetary policy which fits the requirements of other countries through a fixed exchange rate. We are now, at last, on the right track. There is the hope of recovery, but a massive and daunting task lies ahead.

Mr. George Howarth: I am following the hon. Gentleman's arguments on his third point closely. Does he accept that there is an alternative way of looking at public expenditure? If it is focused carefully on capital projects which generate demand in the private sector, it can be offset by the increased yield of taxation, which feeds back into public finances. There is a careful balancing act to be performed. Public expenditure can work in the reverse of the way he describes, provided that it is properly focused on areas of public expenditure which create demand from the private sector.

Mr. Spicer: Of course there is a relationship between public spending and private investment on occasions—I could not agree more. One wants to make sure that the mesh is correct.
I listened to what my right hon. Friend the Member for Guildford (Mr. Howell) said about distinguishing more clearly between capital and current expenditure. I have a little more difficulty than my right hon. Friend on that, because in the public sector there is a much closer connection between current and capital expenditure. If one spends money on roads, there is a blurring of money for repairs and so on, which is current expenditure, and capital expenditure. Of course I accept that there is a relationship between the public sector and the private sector in that context. It is important to get that relationship right and to establish proper contracting procedures and so on.
However, if we are to achieve the growth we require—for the reasons that I gave earlier, we require enormous and sustained growth—it must ultimately come through the private sector. That is what the Budget is all about. In that context, I wish it well. As my right hon. Friend the Chancellor and others have said, we shall look at it again when we come to match expenditure with revenue in the autumn.

Ms Diane Abbott: In Hackney we have the 11th highest level of unemployment in the country. So the test of the Budget for ordinary people in Hackney, as for ordinary people everywhere, is what it will do for unemployment. We are told that by this summer the total number of people unemployed in the country as a whole will be the highest since records began 100 years ago.
So if the Budget does not meet the test of addressing unemployment, it will have failed. Of course, the Chancellor did not ignore the subject. He revealed with a flourish a package of new schemes which are supposed to be what the Budget will do for the unemployed. So I wish


to examine those schemes to determine to what extent they offer substantial help for the unemployed and to what extent they are merely window dressing.
Five main schemes—some of them new, some beefed up versions of old schemes—were revealed this afternoon: learning for work, community action, an increase in the business start-up scheme, a new scheme called TEC challenge and a proposal to give subsidies to employers on a pilot basis to employ the long-term unemployed.
The Chancellor tells us, with enormous pride, that the learning for work scheme will provide 30,000 places for the long-term unemployed to undertake a year's vocational training. First, 30,000 is not a huge figure; it represents a handful of places per constituency. Secondly, and more important, the provision of 30,000 places for a year's vocational training does not begin to meet a demand that has become increasingly loud in the months preceding the Budget—that the Government re-examine the rule that prevents people from studying for more than 21 hours without losing benefits.
It is heartless of the Government to puff up the provision of 30,000 places when hundreds of thousands of unemployed people who would benefit from the range of training and education opportunities that are available in our institutes of learning will continue to be thwarted. They will still have to face the fact that, if they return to educational training for more than 21 hours, they will lose their entitlement to benefit.
The rule is particularly heartless in the current circumstances. Whatever Conservative Members say, we shall face high unemployment rates for some time. For weeks, the Government have hinted and teased about the possibility of flexibility on the 21-hour rule; the learning for work scheme that they have offered in its place is a derisory response to our objections to a rule which continues to be unfair, and continues to penalise unemployed people who genuinely want to retrain and to improve their education.
We are told that the community action scheme will offer 60,000 places for unemployed people to work in the community. That figure, too, is not very high, compared with the unemployment figure of 3 million. More important, however, the scheme offers people a mere £10 on top of their benefits to engage in voluntary work. Ministers ought to stop and think. Ten pounds a week will not even pay for travel and lunch, and it certainly will not help unemployed women to pay child-care and creche costs.
Community action is crippled from the start. It will not meet the needs of unemployed women with children; and, certainly in London and the south-east, that extra £10 will not make it practical or feasible for people to consider voluntary work. Many of them will be unable to pay for travel, meals or the new clothes that they may need to do such work. I note, moreover, that community action is supposed to be delivered through the voluntary sector—the self-same sector that the Government have decimated for many years by cutting local authority funds.
The other part of this glorious package is the business start-up scheme. We were told that there would be 10,000 more places on that scheme. Ministers do not mention,

however, that after three years only 58 per cent. of the businesses started under it are still going. I dare say that, after four years, the proportion will be even lower.
The Government's other brand-new scheme is the training and enterprise council challenge scheme, under which TECs across the country will bid for money from a central pool for job creation schemes. The schemes will be judged according to the extent to which they involve the private sector. The Government seem to have no idea about the reality of life in our inner cities. In areas such as Hackney and other parts of inner London, and Manchester and Birmingham, the private sector is virtually atrophied: in Hackney, the largest single employer is the local authority, followed by the health service. [Interruption.] Conservative Members may sneer, but schemes that depend too heavily on the involvement of the private sector necessarily discriminate against residents of the inner cities.

Mr. Peter L. Pike: Does my hon. Friend agree that, in constituencies such as hers, the slashing of the urban programme will have a bigger impact on jobs—or, rather, on the loss of jobs—than the Budget?

Ms Abbott: That is an important point.
Conservative Members jeered at the notion that local authorities were major employers in areas such as Hackney. It is not the fault of people in Hackney that traditional areas of employment—small businesses related to the docks, for instance—have declined since the war. The structural changes that have taken place in inner-city employment are not the fault of the inhabitants; they should be able to trust the Government to understand those changes and tailor job-creation schemes accordingly, rather than sneering in a way that suggests that the preponderance of local authority employment results from choice.

Mr. Duncan: Will the hon. Lady outline the measures taken by the glorious council in Hackney to attract private enterprise back into her constituency—if any such measures exist?

Ms Abbott: I know that the hon. Gentleman is not familiar with the problems of the impoverished inner city, so I shall forgive his ignorance. Let me tell him, however, that the Government have chosen Hackney council to participate in the city challenge scheme. It is working closely not with the private sector, because the private sector in Hackney is atrophied, but with housing associations and other voluntary organisations to help to improve and renovate housing in Hackney.
Hackney council is keen to work with the private sector in 1993. I invite the hon. Gentleman to accompany me any day of the week and to walk up Kingsland high street and Stoke Newington high street, to visit the industrial estates on the edge of the Lea valley and to see what has happened to industry and business in Hackney under the present Government. Hackney's last major employer closed down four or five years ago. It does not suit a Government who have done so much to smash manufacturing in areas such as London and the south-east to sneer at the people of Hackney because they rely on the local authority as an employer more than they would like to do.
Let me return to the Government's much-touted package of schemes. We shall have to see how the final scheme works—the scheme that will subsidise employers


to take on the long-term unemployed. I do not wish to knock it before it has got off the ground, but such schemes are particularly heartless, in that they are promoted as a realistic answer to the problems of unemployment. We hear today that, even in the borough of Hackney, 58 people are chasing every job vacancy. That figure is not particularly high: in other London boroughs, particularly the outer boroughs, the figure is even higher. Surely it is heartless to promote and publicise such schemes, suggesting that only a lack of will or ability on the part of the unemployed prevents them from working. In fact, if the jobs are not there—and, for 57 out of every 58 of my constituents, they are not there—the most wonderful schemes in the world cannot return people to employment.
Listening to the Chancellor's annual speech is always interesting, but those who wish to know the truth must look at the Red Book. Given the amount that will go into the Government's schemes in the coming year, the package of schemes to which I refer will receive the equivalent of only £55 million in 1993–94. That is a derisory amount to spend on employment. I realise that it does not represent the entirety of Government spending, but it is the entirety of spending on the schemes that I have mentioned. It is particularly derisory and heartless given that we are approaching the summer, when unemployment will be at its highest since records began.
These schemes are simply window dressing. They are Mickey Mouse schemes, which offer a shadow of hope to the unemployed but do not begin to meet the reality of the unemployment crisis that faces people in  in other parts of London, in the south-east and internationally.
I am afraid that it is hard to escape the conclusion that the Government are interested in forcing people back into the labour market at the lowest possible wages. At least the Government now talk about putting people back to work, but they promote a low-wage economy. If I were a member of the Government, I would not be so enthusiastic about boasting about the amount of inward investment to this country, as the Government have been reduced to doing.
Part of the reason for the inward investment to this country is the fact that we speak English, which has nothing to do with Government policy. Another reason for that investment is that wages in this country are 44 per cent. of those in Germany. I do not believe that growth and a return to full employment in this country can be sustained by basing our competitive edge on low wages rather than skills, training and education. In the long term, it cannot be a viable course for this country to seek to compete on low wages and poor conditions rather than education and training. That is why it was regrettable that the Government did not see fit to re-examine the 21-hour rule for people on benefit as it stops them entering full-time education and training.
If one wants to find the truth of any Chancellor's Budget statement, one has to look at the Red Book. We should forget about the window dressing and see what the Red Book says about unemployment. It says that it will be "some time" before unemployment starts to fall again. What does the Government's panel of advisers—the seven wise men—say about unemployment? The panel prophesy that unemployment will continue to rise and that, by the end of the year, it will be between 3·1 million and 3·4 million.
The Budget offers nothing for the unemployed in the short term apart from window dressing. The Government

know that, and the presentation and content of the Budget are heartless. The Budget does not begin to meet the concerns of ordinary people in Hackney and the country as a whole.
One aspect of unemployment which, sadly, will probably not be raised during the entire five-day debate is black unemployment. Recent research has shown that black unemployment in this country is twice as high as white unemployment. In my constituency, the unemployment rate among young black males is as high as one in two. Those frightening figures for black unemployment are a tragedy for the black community because the generation of black people who came here from the Indian sub-continent, the Caribbean and across the old Commonwealth in the 1950s and 1960s came specifically to work. It is a tragedy for those in the black community that their children and grandchildren are being thrown on the economic scrap heap.
Specific factors affect black unemployment in this country. They include the shake-out of labour in public services, health and transport, which have traditionally been high employers of black and ethnic minority people. Black people are affected by discrimination and by what Americans call the "last to be hired, first to be fired" philosophy. The loss of jobs in local government affects black people, who had a choice of fair employment opportunities in local government, certainly in big cities.
What are the Government doing about unemployment in general and black unemployment in particular? They are doing nothing. The Government talk about employer-based training schemes. Statistics prove that such schemes discriminate against black and ethnic minority trainees. It is cruel for the Prime Minister to talk about a nation that is at ease with itself when the Government are prepared to let unemployment rip and bear most heavily on some of the most vulnerable sections of the community.
What the black community—and, indeed, the rest of the community—demand from the Government is action on unemployment and policies to generate full employment. The black community want the Government to take the lead as an equal opportunity employer and to ensure that their training schemes are not discriminatory and are equally accessible to white and black trainees. They want the Government to show some concern, and support and devise specific schemes to address the problem of black youth unemployment in inner cities. I know that not many people are concerned, but black workers from all over the Commonwealth helped to rebuild this country after the second world war. I believe that their children and grandchildren deserve better from the Government than the studied indifference that they have encountered in previous years.
Unemployment has affected the housing market in the south-east. There can be no return to business confidence in London and the south-east without a revival in the housing market. I cannot talk about conditions in the north, Wales or Scotland, but I know that the rise in the housing market helped to promote a feeling of boom conditions in the late 1980s in London and the south-east. That feeling may have been unrealistic, but there was a feeling that we were experiencing a boom. We will not have a revival of confidence unless the Government do something about the housing market.
Today the bankers Morgan Grenfell have issued a report showing what those of us who are home owners


living in London already know—house prices in London have fallen 25 per cent. in the past four years and the council tax will further depress house prices in London. There are more people in London living in houses worth less than their mortgage than anywhere else in the country. The stamp duty changes will do little to help home owners in London and the south-east. One cannot get much in inner London for £60,000, which is the top limit for those who will be helped by the stamp duty changes. Unless there is a revival of confidence in London and the south-east so that people believe that they have a chance of obtaining and retaining jobs, the housing market in London will not start to move again.
Even on the Government's own figures—which, as we know, have been adjusted and massaged to put the best possible face on reality—there are more than 10,000 unemployed people in Hackney. One in four males is unemployed and almost one in five women is unemployed. What is worse is the fall in the number of unskilled people in the labour market because they are not even bothering to register as unemployed. The cuts in local authorities and health authorities that will take place this year as a direct result of Government policy will make the unemployment rate in Hackney even worse. Local authorities and health authorities are the major employers in inner city areas. People in Hackney, and, I suspect, all over the country, want a return to full employment.
When I was a sixth-former almost 20 years ago, my contemporaries—young people of 16 and 17 who were thinking of leaving school or going on to further education—and I had discussions and thought about what jobs we would do. It never occurred to people leaving school in the late 1960s and early 1970s that they would not work at all. One of the harshest results of the Government's mismanagement of the economy over the past decade has been that a generation of children have left school in Hackney and elswhere who feel that they will never work. They believe that it is not worthwhile getting an education or training because the jobs are not there. To blight the hopes of a generation in that way is one of the cruellest things that the Government have done.
It is all very well for Conservative Members to weep crococile tears now—

Mr. Derek Enright: They are sniggering.

Ms Abbott: Yes, they are indeed sniggering, which shows how little the problem concerns them. It is all very well now—in the 1990s—for Conservative Members to weep crocodile tears about the unemployed and to wring their hands in anguish over the issue, but Labour Members and people in the country know that throughout the 1980s the Government deliberately used high unemployment as a weapon to smash the trade unions and keep down wages. Nobody takes those crocodile tears seriously now.
The test of the Budget for ordinary people—not journalists and political professionals—is what it will do about the central tragedy in economic life: the unemployed. The unemployed are offered Mickey Mouse schemes, window dressing. This is an exercise in public relations. The statistical and economic data behind the Chancellor's speech indicate that the Budget is based on the assumption that unemployment will continue to rise in the foreseeable future.
What has been presented to us today is failure. The Budget fails my constituents. It fails the unemployed people of Hackney and in the rest of the country. It will be seen for what it is. When, in a few years, the Government go to the electorate, the way in which they have cheated, deceived and failed the unemployed will not be forgotten or forgiven.

Mr. Ian Taylor: If there is anyone who has failed, it is the hon. Member for Hackney, North and Stoke Newington (Ms Abbott), who has not addressed the question of how to reduce unemployment. All hon. Members would very much like to see full employment. On that question, there is no difference between us. The differences between us relate to the means of achieving and maintaining full employment. That is the aspect of the matter which the hon. Lady and, indeed, the rest of her party need to address. We heard a short, jolly, churlish and negative speech from the right hon. and learned Member for Monklands, East (Mr. Smith).
I simply do not understand why Opposition Member after Opposition Member failed to welcome the strategy behind the Budget. The purpose is to create a medium-term and long-term framework for industry and the rest of the economy—
the only way to achieve sustained growth and high levels of employment.
What we need is a framework within which to stabilise the economy and encourage and strengthen businesses that invest in Britain's future. That is what we heard from the Chancellor of the Exchequer this afternoon and what the country wanted to hear.
The words that I quoted a moment ago are from a document issued by the Labour party last week. It is described as Labour's budget for jobs and I have scanned it with great interest. Having looked at the strategy, I am puzzled by the fact that Labour Members have not welcomed the Chancellor's speech. What is the great difference between that speech and the speeches of Opposition Members? The Chancellor has dealt with the practical reality of how the objectives are to be achieved and how the framework strategy is to be met. This Labour document does not put forward one idea about how to raise the money to tackle the problems that we all know are to be found in the economy. It is a false prospectus of the worst sort.
I welcome the strategy that has been set out by the Chancellor, whose speech almost enters the record books as perhaps one of the longest Budget speeches this century. I am not very strong on the history of Budget speeches, so I cannnot be certain about that. In any case, the two-hour speech that we heard today contained a great deal of meat, which will be considered in detail during the Committee stage of the Finance Bill. My right hon. Friend addressed several key issues at the macro-economic level, some of which I wish to refer to.
I was delighted to hear my right hon. Friend emphasise why membership of the exchange rate mechanism had been very important. Hon. Members differ as to whether the day of our departure was black Wednesday or golden Wednesday or white Wednesday. I regard it as black Wednesday, but let us not be pedantic. There can be no doubt that the Government's attempt to adjust the inflation expectations of people in this country once and for all was worth while. My hon. Friend the Member for


Worcestershire, South (Mr. Spicer), who is not in the House at the moment, attached too little importance to the effect of our entry into and membership of the ERM in breaking the traditional British habit of inflating our way out of difficulties, of preferring high levels of inflation to the tough decisions that are necesary to proper management of the economy. Given that there were high levels of inflation under the last Labour Government and that, by and large, high levels of inflation are associated in the long run with high unemployment, I am perplexed by the Opposition's attitude. The ERM did indeed reduce inflation expectations. At some point we shall have to look again at the whole question of managed exchange rates within the open capital market of the European Communities. However, that is not a matter for this speech, although it will undoubtedly come up at the Committee stage of the European Communities (Amendment) Bill.
We should be cautious about the effect of our leaving the ERM on black Wednesday. That event provoked a fall in the value of sterling. The fall appeared to be very welcome in that it made our exports more competitive. However, we rely rather heavily on trad—particularly on imports, which make up one quarter of final demand. The potential danger is inflation of imports and, therefore, the return of inflationary pressures to the economy. That has yet to be seen, partly because United Kingdom manufacturers have not increased their prices. They realise that demand is still rather flat and, as overall inflation expectations are still low, wage settlements have been very modest. However, hon. Members should not believe that we have conquered the dragon of inflation. It is still there, writhing on the floor. A weak pound is not something that any Government want to see. Even if we are not in the ERM, economic policy must take into account the position of the pound vis-a-vis the currencies of our competitors.
Nevertheless, we have witnessed an ability to adjust, to weaken monetary policy. Interest rates have fallen and the fall in the value of sterling itself has weakened monetary policy further. I am very pleased that this has given us an opportunity to tackle the problems of asset deflation. It is an opportunity that we must grasp. But the way in which some of us regard the montary aggregates as already indicating the return of a good degree of buoyancy to the economy should not be underestimated. MO is pushing at the upper end of its set range and there is quite a hidden impetus, which will be revealed in the months ahead. I know that M4 has been criticised as being rather flat on its back. I suspect that one of the Chancellor's reasons for giving slightly more buoyant figures for M4 is that he is adjusting the full funding rule by allowing the banks' and the building societies' purchases of gilts to be taken into account. If that is the case, we are witnessing an overall loosening of monetary policy. That will be welcome on one condition—that we tighten up on the fiscal side.
On the question of balance in the economy, there is no doubt that, as we have had significantly weakened monetary policy in recent months, we should pay attention to the fiscal side of the equation. The Chancellor has very graciously set forth a long-term strategy to that end. Too seldom do Chancellors set out their intentions with regard to taxation over a number of fiscal years. My right hon. Friend is to be commended on that score. My caveat is that the incidence of tax biting has been delayed to the beginning of 1994–95. In effect, there will be a generally

neutral effect next year. I will not be critical of the Chancellor's endeavours because he has moved in the right direction, but I put down a marker: given that the medicine has been dangled before us, it would be better that we took it quickly. I make that point to my hon. Friend the Financial Secretary.

Mr. Wolfson: My hon. Friend has given a balanced view, but does not he agree that if action such as he suggests had been taken sooner rather than later, it could have had a dampening effect on recovery? That is the key.

Mr. Taylor: It is a complex argument. I do not wish to prolong my speech, but there are many factors which impinge upon confidence. If it were felt that the Government would have difficulty funding the deficit at any reasonable level of long-term interest rates and that the debt-to-GDP ratio would get out of hand, that would be damaging for confidence, in the widest sense of the word, and might snuff out a revival which, in other circumstances, monetary conditions might already have safeguarded.
The issue is complicated. My point is that the funding of the deficit and the belief that the Government have a credible long-term strategy, including an early move to increasing taxation, would have been on balance a better judgment. Far be it from me to know whether that is likely to be the case. Time will tell. The great point about making speeches in the House is that, although very few listen at the time, plenty of people are prepared in a year's time to check on what one said. So Hansard has my fate in its hands, so to speak.
Even the excellent recent survey on inflation by the Bank of England—the report which the Chancellor instructed it to make—indicated clearly that fiscal policy is important in influencing expectations of future monetary policy and for that reason may affect current long-term interest rates. We cannot disentangle the relationship between fiscal and monetary policy in those circumstances. Those who would like low interest rates at the short end and lower interest at the long end have to face up to the fact that they may achieve that only by a much more aggressive fiscal policy than Conservatives have been accustomed to.
Fiscal policy covers spending and tax raising. I would welcome cuts in spending plans, and I am delighted that the Chief Secretary is studying that closely. I am not sure where I stand on that in the Conservative party; it is always confusing, but as someone who believes that there is a role for public exenditure in important parts of the economy, I must point out that 56 per cent. of all Government expenditure is represented by education, social service payments and healt—areas in which it is difficult to make dramatic cuts in the short term.
With a public sector borrowing requirement of £50 billion, cuts would need to be dramatic. Therefore, I hesitate slightly on taking the view, "It will be all right on the night because we will cut public expenditure." I suspect that we will restrain public expenditure. One way in which we might force ourselves to do that is to take away the GDP deflator from the calculations on spending plans; in other words, we should remove the concept of increasing public expenditure for the incidence of inflation. That would be a welcome change in the way in which the


Government address the figures in the Red Book. I commend it to the Treasury team, but it will not save us from addressing the incidence of taxation at some point.
It is misguided of the Labour party to criticise the introduction of VAT on domestic fuels. That is a significant fund raiser. Zero rates have always been an anomaly and would be better tackled in other ways. The Chancellor rightly mentioned that the Secretary of State for Social Services will need to review these matters in subsequent statements because of the impact particularly on the lowest paid and those in receipt of social service benefits.
About 24 per cent. of all our goods are zero-rated or are exempt; that is an imbalanced VAT network. I have already said in the House that I favour the removal of zero rating, possibly with the introduction of a lower rate than the standard rate, which would be consistent with the rules of the European Community. I welcome the two-stage introduction of the standard rate on domestic fuels, with 8 per cent. to begin with, followed by 17·5 per cent.
If all zero-rated items were subject to a standard rate of VAT, the standard rate might be reduced. That might be a simpler way of dealing with the matter and it would yield £5 billion or £6 billion extra to the Exchequer in a full year. I do not want to go further into such matters. I am happy to put it on the record that if we need to raise taxation, I am uncomfortable with the zero rating of VAT.
The Chancellor hinted at something that I should like to examine more carefully. He did not imply, because no Treasury Minister would do so, that there would be hypothecated taxes, but in his comments on road fund licences, fuel taxes and road pricing there was a hint of hypothecation. I welcome that because it would give greater accountability to the Treasury. Perhaps it would not give much flexibility, but the Treasury has always been known to be as flexible as it wants. From the point of view of the public, I am happy that we get a better understanding of why taxes are being raised.
The Budget contained welcome measures. I should disclose, because it is in the Register of Members' Interests, that I advise Commercial Union and Barclays de Zoete Wedd Investment Management. Therefore, I take particular interest in some of the measures. Perhaps in a strange order, I welcome the measures in regard to Lloyd's names. I am not a name at Lloyd's, but I attempted to raise the subject in the debate on the Finance Act 1991. The Financial Secretary is to be commended for examining the whole system of the reserving of Lloyd's. That will be welcome to an important institution in the City, regardless of the comments of Opposition Members about individual names. As an institution, Lloyd's is important to the stability of the City and to invisible earnings at the time of a balance of payments deficit.
I also welcome the freezing in real terms of the increase in the uniform business rate. That will go down well with businesses in the south-east and elsewhere.
The Chancellor has been clever in making more use of the 20 per cent. band in taxation. I also welcome the fact that we appear to be moving towards using the 20 per cent. rate only as an allowance. That is sensible. It will give greater justification for that rate ultimately to become the standard rate. That does not necessarily mean that I think that taxation should be reduced; I merely believe that it is

a better balance of the tax structure. It will benefit the Treasury if allowances are set off at the 20 per cent. rate rather than 25 per cent. So people will benefit from the level of taxation and the Treasury will benefit from the fact that allowances are not as generous.
Many of the Budget's measures should be welcomed. Britain has a considerable problem. Our balance of trade deficit is worrying at this stage of the cycle, given our propensity to import. Our European export markets are going into or are already in recession, at a time when we are most likely to be selling to them. That has an adverse effect on us, because British manufacturers are more likely to believe that they can increase prices in the domestic market rather than in export markets. Again, we shall have to watch that from a domestic inflationary point of view.
Although we have relaxed full funding to a small extent, our PSBR will lead to high long-term interest rates and the Government will have to fund the deficit. That is why I am concerned about the revenue-raising side of the Budget. If the PSBR for a full year is £50 billion, with interest rates on gilts at 8 per cent., the Government will accumulate an additional £4 billion debt and debts are cumulative. The net effect, therefore, of postponing revenue raising for a year means that it starts at a higher level than otherwise would apply. We must keep a close check on that.
I hope that the Budget restores confidence in the Government's long-term strategy. I hope that it encourages unemployed people to believe that we are endeavouring to help them, and a large portion of the Budget offers assistance to industry. [HON. MEMBERS: "Where?"] Opposition Members should not shout "Where?" when they know that Governments do not create jobs out of a hat. Governments create jobs by giving other people the opportunity to expand. Unless industry flourishes, there is no long-term hope for those who are unemployed.
That is why one of the longest sections of the Budget speech targeted help on industry, which I welcome. I may have said that the Budget was wrong to be neutral, but it is neutral because tax raising is being retargeted on industry. I hope that industry realises that it has been highlighted for particular assistance this year and I hope that the CBI, the Association of British Chambers of Commerce and the Institute of Directors will pay tribute to the Chancellor for listening to some of their requests. It is up to British industry to create the job opportunities to which we aspire and, if my judgment of the effects of monetary policy is right, the economy will probably recover slightly faster than some of the pessimistic forecasts suggest.
I would not have raised our involvement with the European Community if it had not been mentioned by my hon. Friends the Members for Worcestershire, South and for Stafford (Mr. Cash). This is a very serious matter because all our efforts to get our economy going and to emphasise the competitive instincts of British industry and the British economy could be put out of joint if we do not make further progress on the Maastricht treaty. I have a copy of a letter dated 15 March from the Association of British Chambers of Commerce to the Prime Minister, which was released to the press. Its chairman states that it represents 240,000 businesses and that
those who suggest that we have gone far enough with the Single European Act are making a mistake that British businesses cannot afford… Any continuing uncertainty or delay as regards UK ratification can only undermine business


confidence, which will in turn endanger economic recovery… Against this background we urge you to press ahead with the ratification process which has our full support.
The association represents the 240,000 businesses that were targeted today in the Budget. Through their national chairman, they have addressed the problem that will arise if Britain appears to isolate itself within the European Community, appears to downgrade the importance of inward investment and appears to leave other people to determine the rules of the club to which we belong and of the single market, of which we are important members.
I appeal to Opposition Members to join the vast majority in the House, as was shown on Second Reading, who understand the importance of creating jobs and assisting British industry to damn well get on with ratifying the Maastricht treaty as soon as possible.

Mr. John Gunnell: I understand the comments of the hon. Member for Esher (Mr. Taylor) about the need for a strategy, on which I shall comment myself, although I am not sure that I will agree with him on some aspects.
I agree with the hon. Gentleman about inward investment. I have visited Japan several times seeking inward investment on behalf of a number of companies in the Yorkshire and Humberside region, and I have never met a company that did not see us in the context of the European Community. Our active membership of the Community is undoubtedly important to them.
The working conditions of most Japanese companies are far better than those proposed in the social chapter. I find it hard to believe that companies that have been attracted to Yorkshire would have been put off by the social chapter. One of the unions that negotiated an agreement with Pioneer in Wakefield said that, if it could secure the same agreement for each of the companies with which it is involved, workers in almost every British firm would be a good deal better off. Conservative Members make many false points about the dangers of the social chapter to inward investment. I therefore agree with the hon. Member for Esher about the significance of our membership of the Community.
I found the strategy employed in the Budget, so far as we got a glimpse of it, very threatening. It threatens many low-paid workers. It will increase their taxes now, in April 1994 and in April 1995. I listened to the Chancellor for 112 minutes, waiting for ideas to deal with the scale of our unemployment and with the real fear about the future of our economy. Labour Members are not anxious to see a continual decline in the economy. We are anxious to see recovery and to ensure that measures are being taken to bring about recovery. I saw some ideas which will have some effect, but I did not see those ideas that I believe will get the economy moving forward. I do not see this, I am afraid, as a Budget for jobs, even though it was boosted as such in advance.
I was in some agreement with the hon. Member for Esher on the very curious way in which the Chancellor, in an oblique—sometimes, indeed, in a direct—fashion, referred to black Wednesday. He did not label it with an adjective, but he was referring to that day. One had the impression that he was very much on the side of those who believed that it was golden Wednesday, because he gave all sorts of illustrations of its benefits to the Government and

the Government's financial planning. He did not refer, as did the hon. Member for Esher, to the downside of that day.
I remember the way that we moved up to that Wednesday, the statements made in advance and the statements made immediately afterwards when the House met on 24 September, and I contrast them with the way in which the Chancellor today used those events as having enabled him to turn around aspects of the economy. I felt that we were talking about Government by accident, and that is a matter of considerable concern.
One aspect of the Budget is not an accident; that is the way in which, in terms of its strategy and the need to raise money, the Budget is focused. I believe that it is focused on raising funds from ordinary families in this country, and that can be illustrated very easily.
There is in this Budget a tax reduction in terms of the 20 per cent. band that is in reality a tax increase. None of us would pretend that national insurance contributions are not a form of direct taxation. One of the points made by many hon. Members before the general election was that national insurance contributions were a form of taxation, and they wished then to treat them as such. We are right to treat them as such now.
What benefits do people get from the 20 per cent. band changes? They are described as 50p a week and, by April 1994, £1 a week. However, allowing for the fact that people might have expected allowances in line with inflation, I believe that they will be worth only 84p a week in April 1994 to the average family. The increase in national insurance contributions, on the other hand, will cost the average family £3 a week. That is a staggering difference between what is presented to us as a benefit and what is, in reality, a penalty. There is no doubt that the increase of 1 per cent. is in effect a 1 per cent. tax increase and will have the effect on the average family of an increase of £3 a week.
The hon. Member for Esher said that he was quite happy about the imposition of value added tax on domestic fuel. I think that it is an appalling decision. Interestingly, none of the letters that I received from constituents before the Budget referred to that, although they referred to many other aspects. For instance, there was much lobbying mail on the subject of VAT on newspapers and books, and I am very glad that there is not to be that tax on information. We also had a great deal of propaganda and pleas about VAT on public transport, and I am glad that that is not to be imposed; it would clearly be nonsense.
Why did we not get a great deal of correspondence on the subject of VAT on domestic fuel and power? It was because people were not looking for it, and they were not looking for it because, as my right hon. and learned Friend the Leader of the Opposition made quite clear, it was a matter on which the Government had been absolutely specific prior to the general election. They said specifically that fuel would not be subject to VAT and that there would not be changes to VAT. That is why we were not lobbied on this issue. This shows that people placed completely unjustified trust in the Government. They believed what the Government said before the election about VAT on domestic fuel, but VAT has been applied; and the cost to the average family, when the full 17·5 per cent. VAT is applied to domestic fuel, will be over £2 a week.
Then we have to take into account the mortgage changes. The Chancellor made it clear that we are talking about £10 a month, or £120 a year, which is another £2·31 a week for the average family. We also have to take into account the freezing of the married couple's allowance and the fact that it is not to go up with inflation as has been traditional for much of the past. That amounts to another about £1·80 per family per week.
If we add all these figures together, we find that the average family in this country will be ££8, or a bit more, worse off as a result of this Budget.
So who will be paying for the fact that the Chancellor is rightly concerned about the £50 billion of debt? It seems to me that it will be principally ordinary families in this country. Therefore we should be very concerned about these taxes.
I will put a question to the hon. Member for Loughborough (Mr. Dorrell), since he is here, about VAT on fuel. There has been a lot of controversy about standing charges and whether they benefit or disadvantage pensioners. I have sent pensioners in my constituency the erudite letters which the Library has on this, stating that it can be argued that standing charges are no handicap to the worse off, but help them. But people still feel that they should not be paying standing charges. I should like to know whether VAT will have to be paid not only on the cost of the fuel that is used but also on the standing charges. We are entitled to an answer to that question.
I have been, and am, involved a lot in Yorkshire Enterprise, which is a regional venture capital company. We work with financial institutions which operate the loan guarantee scheme. I have said in the past that I would like to see changes to that scheme. Some of the changes that are made are to be welcomed, but the job has not been completed; it has been half done. It is right to extend the small firms loan guarantee scheme over a larger range and to make it possible for the borrowings to be higher than £100,000, and I am glad to see that limit extended to £250,000. I am glad to see the changes with regard to interest rates, making it possible for a smaller margin to exist between the base rate and the rate at which these loans are made.
I am glad that there has been an increase in the guarantee, because we found that institutions do not want to operate the scheme, as their position is so uncertain at the moment. They do not want to take the 30 per cent. risk, so I am glad that it has been reduced to 15 per cent. and that 85 per cent. of the amount is to be underwritten. Will there be takers as a result of the changes? Will a small firms loan guarantee scheme have a better effect?
To carry out investment appraisal properly—whether we are talking about lending a company £100,000 or far more—one must employ the same due diligence to ensure that the management of the company involved are capable of managing the company successfully, that the business plan is sound and that there is a market for its goods and services. In other words, one must ensure that the company is viable and that it is safe to lend it the money. The amount of work involved is not directly proportional to the size of the loan. An enormous amount of due diligence is involved even when dealing with small loans of £100,000.
One of the proposals by David McMeekin of the Midland bank, who has taken some responsibility for the Midland enterprise fund which operates in Yorkshire and Humberside, is that, if we want investment appraisal, which enables the small firms loan guarantee scheme to work, to take place, the companies carrying out the investigations should get tax relief on the costs of those investigations. The costs are usually extremely high in relation to the amount of the loan. That change has not been made. One can give a partial welcome to some of these loan guarantee scheme changes in the Budget, but I wish that the job had been done more thoroughly.
It is unusual for the Chancellor's speech to be the occasion for a major announcement on the channel tunnel. Many of us have followed the progress of the tunnel for many years, and have been concerned to ensure that its benefits are national and not confined to London and the south-east. Those of us who have been concerned about northern links to the tunnel expected any announcements about the tunnel to be made in a national context. It should be made clear that any decisions about routeing, stations and termini in London are enormously important for links to the north.
We wish to ensure that there are through passenger and freight trains on the west coast main line and the east coast main line direct to the channel tunnel. The decision announced today clearly means that there has been a change of plan. We are forced to ask what will happen to the King's Cross Railways (No. 2) Bill. We have been promised links to the north. I have received promises from successive Secretaries of State for Transport and from successive Ministers for Public Transport, including the right hon. Member for Enfield, Southgate (Mr. Portillo), who is now the Chief Secretary to the Treasury. The right hon. Gentleman and I appeared on so many platforms together talking about the channel tunnel that he called us part of a travelling circus. In answer to our questions, he always said that there would be links to the north. It is the Government's responsibility to ensure that there are. It is very disturbing to hear about changes to the King's Cross scheme, for which we have planned for a long time, being announced in anything other than the full context.
Investment matters to the north for the regeneration of industry. All the Japanese companies interested in investing in Yorkshire ask questions about our links with the channel tunnel. They may prefer to use the Humber ports, but they still ask about the tunnel. We need to be assured that, in any transport changes announced, curiously, in the Budget, the interests of the north are taken care of. It is important that the announcement is clarified.
We must recognise that the Budget means choosing where the money is coming from because of this country's enormous debt. In my view, the costs have been imposed to an inordinate extent on ordinary families, in the same callous way that the 13⅓ per cent. increase in prescription charges was announced last night. There have been mistakes in the Budget, which will cost families in my constituency dear, and which will, in the end, cost the Government dear.

Mr. Mark Wolfson: I am happy to follow the hon. Member for Morley and Leeds, South (Mr. Gunnel), and I should like to focus on two points on which


I directly agree with him. The first is his earlier reference to the experience he had had in Japan of finding all those companies and other organisations that were interested in development in Britain, linking us with their expectation of our being full members of the European Community. That was a practical example, for the benefit of the House, of the importance of getting on with Maastricht and continuing to play a full role in Europe.
The second point is on the hon. Gentleman's final remarks about the channel tunnel. I have an interest in the tunnel from the point of view of the south-east, but I have argued from the beginning that it was of key importance that the tunnel and the rail link should bring benefits, not just to London and the south-east but also to the north of England. I agree with the argument advanced by the hon. Member for Morley and Leeds, South that planning on the tunnel, which has been seriously delayed, should continue to take account of the importance of the north of England and the links to the north right through Europe via the tunnel.
The hon. Member referred to the iniquities of the increased charges for national insurance, but if one accepts that national insurance is a fund and that it is currently in deficit it seems to me not to be wrong for the Chancellor to take steps to try to correct that.
The Budget speech was long, detailed and highly technical. I pay tribute to the consultation which the Chancellor and his team of Ministers has carried out with hon. Members of his party. That was well done. One of the reasons that the Budget has been well received by our party is that prior consultation. That has not always happened. It is happening more effectively now, and that is beneficial.
The Chancellor had a difficult task, both in personal terms and in dealing with the economic problems of the country in this Budget. The Budget is being well received because it addresses the two key issues of the economy: first, the essential need for growth now; and, secondly, in the medium term, the need to minimise the Budget deficit. It was those two factors which the Chancellor had to try to keep in balance, and he has done that effectively.
I welcome the focus on industry, just as I welcome the Prime Minister's recent emphasis on the importance of manufacturing. That is not before time. I welcome the measures to help business because there is a positive story to tell on the record of British business which has not always been getting the headlines that it should. I welcome the measures that have been taken on employment, and I say yet again that the level of unemployment is unacceptable to me as it is to many other hon. Members on these Benches. We in no way play down the human and family cost, and the cost to the country, of unemployment, but, as other speakers have said, the argument is about how, in the longer term, one can overcome that problem.
I welcome the measures on infrastructure projects and joint ventures. I will say something later about that and about my views on the imposition of VAT on road fuel duty and on fuel and power.
I want to say something more about the background of this Budget and the help it gives to business. The Budget assists recovery by not increasing taxes overall on business in 1993–94. It makes recovery sustainable by laying out a strategy to reduce Government borrowing over the next three years. It increases revenue without raising income tax

rates. To have done otherwise would have dampened incentive, and I am relieved that such dampening has not occurred.
The Budget raises revenue and, by increasing taxes on fuel and power, takes the Government two-thirds of the way forward on Britain's Rio commitments on the environment. That is essential because sooner or later we would have had to move on that front. We have been unreasonably criticised for not giving enough priority to environmental issues. If Labour Members claim that we have been wrong to take those measures, what steps would they have taken, bearing in mind their support for the Rio agreement?
The Chancellor has been right to address the problem of excessive borrowing because we could not in the long term allow large borrowings to continue without action being taken. Being something of a Keynesian, I have always accepted that during a recession it is permissible to allow the PSBR to rise. It is, in any event, inevitable because much of the deficit goes to support the unemployed and those in greatest difficulty as a result of the recession.
In trying to take a balanced approach, the Chancellor has given advance warning of the revenue increases that are to be made. It is important to keep the money markets satisfied that the Government have a medium and longer-term strategy to bring fiscal rectitude back into the Budget. We have seen the benefits of doing that, and I do not want them to be lost. Equally, in contrast to my hon. Friend the Member for Esher (Mr. Taylor), I believe that it would have been wrong to move on personal income tax at this stage in the recovery.
The industrial picture is good. Retail price inflation has been below the EC average since August 1991, putting us in a better competitive position. Interest rates are the lowest in the EC and the lowest in Britain for 15 years. Productivity growth at the end of last year was the fastest for five years. The transformation of industrial relations is history, but it has made a significant difference to what British industrial managers can now achieve. They can concentrate on design and marketing without always having to look over their shoulders, fearing the need to put out a bush fire, as it were, in their factories.
We would like to see more being done in the Budget about employment, but we cannot spend our way into full employment by way of Government expenditure. We must set the framework for business to create new jobs. With the continuing trend of increased technology in large industry, increased employment will come from smaller businesses, not just service businesses but smaller companies springing up to meet the demands of a buoyant economy. The new community action programme is welcome, as is the business start-up scheme and the pilot schemes to encourage employers to engage the long-term unemployed.
This Budget provides a clear strategy. After black Wednesday, and for the weeks until the autumn statement, the Government were continually under fire for having no replacement for their strategy of membership of the ERM. I was not one of those who foresaw the damage that membership of the ERM could do when our economy was unable effectively to compete with the high interest rates of Germany, but I am now wise after the event. I do not believe that we should return to that arrangement in the foreseeable future as it would be highly dangerous.
British business has felt the benefit of the freedom in which we have been able to operate since we left the ERM. The turning point for me was the focus in the autumn statement on growth rather than on merely keeping down inflation.
I was exremely glad that the Chancellor made clear his priorities after the autumn statement. He is now following through the autumn statement with further measures focusing strongly on help to business, particularly small business. He has also demonstrated that he has a policy to ensure that Government borrowing will not spin out of control. I hope that we shall have lower interest rates as soon as possible, but I understand the difficulties and the necessity of balancing various Government measures on taxation and budget deficit while still paying some attention to the standing of the pound. We should not lightly throw away the benefits that followed the freeing of the restraints of the ERM which had become extremely damaging.
My final point concerns the infrastructure projects, in particular the channel tunnel high-speed rail link. I take some satisfaction from the fact that I have argued from the beginning, when very few hon. Members in my party argued that way, that it would be necessary for Government money to be invested in the high-speed rail link. The Chancellor told us that today for the first time. He did not give us details of the route. The fact that the route would be announced shortly was no news for those of us who have been involved in channel tunnel discussions for the past four or five years and who have gone through hell in our constituencies because of that worrying problem. The news today was the Government's clear commitment to put up some of the money in a joint venture. That is right, and I welcome it.

Mr. Peter L. Pike: I shall make my speech in the first day's debate on the Budget in a slightly different order from the one I had originally intended because I want to question the Minister on one or two issues on which I did not fully understand the Government's position.
I do not necessarily agree that mortgage tax relief needs to be abolished, but I accept that it needs to be addressed and considered. I hope that the Minister can assure us that today's announcement of its reduction to 20 per cent. is not the first step to phasing it out completely.
The Government must be prepared to consider in a positive way whether the present tax relief on mortgages is the best way to use the considerable amount of money involved. I am not arguing that the money should be used to help people who are renting property, but I am not certain that the way in which tax relief is given to people buying property is the most appropriate method as the people who are most in need do not necessarily get the tax relief. We all know that the present M IRAS system was an extension of the option mortgage scheme that was introduced by the 1964–70 Labour Government.
I welcome the increase in charitable giving through the payroll system which should be encouraged. The Minister will be aware that there has been overwhelming pressure from both sides of the House in favour of changing the system of charging VAT on charities. Outside the House,

there is widespread concern over the way that certain moneys are drawn off charities through the VAT system. Among all the announcements that the Chancellor made about VAT, I did not hear anything to address that problem.
Another aspect is important to football supporters. I have a vested interest here as I support Burnley, and have done for many years, and am anxious to learn whether it has won tonight's game; I should have been at Turf Moor watching the team play. Under a concession, money from the football pools went to the Football Trust to allow ground improvements to be made to meet the Taylor report recommendations on safety. Many clubs that want to make those improvements—Burnley is one of them—are dependent on getting sufficient grant to enable them to do so. We want to know whether those arrangements will be extended so that the Football Trust can receive that money for a further period.
The Budget speech lasted for an hour and 50 minutes. The Chancellor called it neutral, but in my view it was a long-drawn-out tinkering Budget that will achieve little or nothing. With, on the Government's figures, 3 million unemployed, and probably in reality 4 million, it is a scandal for the Government to introduce a neutral Budget. Many people will feel that the Government have failed them. With 14 years in office, the Government have had time to lay the foundations for industrial and economic recovery. I am glad that, at least, it was not called a Budget for jobs. We have had several of those over the past 14 years, but unemployment has remained unacceptably high.
In many other Budget debates, I have spoken about the north-south divide, which is a major problem. Tonight, the Government are narrowing that divide, but are narrowing it in the wrong direction. Rather than improving the situation in the north, they are making the situation in the south worse and increasing unemployment there.
I visited Aldershot a couple of weeks ago and went around the town centre. I was amazed to see the number of shops that have closed as a result of the recession. A new town centre has been developed, with a new precinct and a second phase in the Wellington centre. Not a single unit has been let; all are boarded up. Next to it, there is a new shopping arcade, which has been built for a fair while, with only two units let. People do not realise that because the shop fronts have been painted and it looks as though there is a florist, a hairdressers and other shops. Tory economic policy is failing, and that is a sad reflection of it.
It took the Chancellor an hour and 37 minutes to get around to announcing any measures to tackle unemployment. He spoke of 100,000 jobs. He said that he wanted to get 10,000 people into businesses and job-start schemes at a time when we have the highest-ever rate of bankruptcies and people going out of business. We all support the objective, but it only scratches the surface of that major problem. He wants 60,000 to go into the community action programme with a scheme of payment of benefit plus £10 a week. My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) highlighted the problem for such people, who will have to pay for fares and meals out. Who will be attracted by benefit plus £10 to go into community action? What nonsense that is.
The voluntary sector is being asked to launch the scheme, yet in the deprived areas—the 57 urban programme authorities—urban programme money has been axed and the voluntary sector has been squeezed.


Difficulties are increasing. In my constituency, not only have we lost £;2 million in urban programme money, but we bid for one urban partnership scheme—that is the new scheme for which the Government are asking councils to bid—the Government turned it down, although it would have created 500 jobs. Four of our seven schemes were successful, but one that would have created 500 jobs was turned down, not because it was a bad scheme but because there was a ceiling of £20 million for all the authorities in the country.
The Chancellor highlighted at the outset the type of speech that he intended to make when he said that the Government would never sign the social chapter. The Government's failure to accept the social chapter shows that they believe that we are a second-class nation. They are not prepared to have wage councils or a national minimum wage, and they say that the other 11 countries can have the social chapter but it will never apply to this country. That is an absolute disgrace.
In so many places in this country manufacturing industry is hanging on by its fingertips. There was nothing in the Budget to encourage sufficient investment in training. What a waste of assets, when so many people are not contributing to the economy because they are unemployed. There were no tax incentives for industry to invest more in new equipment and machinery, or in research and development on a bigger scale. Research and development is going away from this country. It is no good simply having Japanese and other investment in this country—although we all welcome it. We want research and development to be carried out in this country, because we want to be at the sharp end, at the forefront of high technology and new industries.
Several tax increases were announced in the Budget. There was a tax on domestic heating and other energy—first 8 per cent. and then 17·5 per cent. I have constituents who cannot afford to run their heating or to put the gas fire on at weekends, because they do not have enough money. The Government fail to recognise how many people suffer from real poverty in Britain after 14 years of Tory rule. It is a sad reflection. Let them go round London—and all our other cities—now and see the people begging on the streets. That is the scandal and disgrace of Britain after 14 years of Tory rule.
The personal tax allowance is being frozen. That is another tax increase. National insurance contributions are to rise by 1 per cent. from April 1994. That is yet another tax increase—and it comes from a Government who were pledged not to increase taxes.
Towards the end of his speech the Chancellor referred to the fast rail link to Heathrow as if it were something new. But it is a regurgitated scheme. Yes, we need it badly—we should have had it years ago. Anyone who travels to Heathrow realises that the Piccadilly line is totally insufficient to cope with the number of people who use the airport. The crossrail link, too, has been regurgitated after 14 years. We are not against it; it is much needed—but it is long overdue.
As the hon. Member for Sevenoaks (Mr. Wolfson) said, at last the Government have realised that they must invest in the channel tunnel rail link to St. Pancras, and that it cannot be built by the private sector alone. But on the other side of the channel, in Calais, the rail link is nearly open and the new motorways are there. After 14 years of Tory rule we are still not ready for the channel tunnel.
The Tory Government have created a trade deficit of £17·5 billion this year. The public sector borrowing requirement is £35 billion this year and will be £50 billion next year. As the hon. Member for Esher (Mr. Taylor) said, the Government intend to review spending. We know what spending reviews and "better targeting" mean. They always mean cuts—and it is always the deprived and poorer sections of the community who suffer from the cuts.
We want the Government to say that councils can use their capital receipts in a sensible and phased manner to build council houses. That would get the economy moving in the right direction. It would get construction workers back to work; people would be making windows, doors and other such things; people moving house would buy curtains and carpets. That would start things moving in the right direction. The Government's dogma will not allow them to recognise the way in which they could tackle the housing problem and the economy at the same time.
Today's Budget was the last Budget to he presented separate from the announcement of the Government's expenditure plans. The two will be combined later this year. Time after time, the Government have revealed in their expenditure plans the sums from the sale of assets that they will use to supplement their spending. What will the Government do when there are no more assets to sell?
We know that the Government propose to bring forward the sale of the final part of British Telecom and to sell it this year. The Government can also sell sections of National Power and PowerGen. In theory, they can sell Nuclear Electric. However, once those assets have gone, the Government will be in a cleft stick. They will either have to savage their expenditure or raise taxes. The only other route is to get the economy moving in the right direction and so achieve growth. After 14 years of Tory government, I do not believe that we will ever see that.

Mr. Alan Duncan: At such a crucial stage in our economic fortunes, the most important judgment that my right hon. Friend the Chancellor and his team had to make in drawing up today's announcement was to assess the macro-economic context in which today's Budget has been set. At the end of several years of recession, my right hon. Friend the Chancellor had to ask himself whether it was right to stimulate demand further or whether, in anticipation of a recovery that may already be under way, it was more prudent to claw back some of the borrowing that he had already undertaken.
To appreciate the importance of that judgment, we must appreciate the historic structural problems that have beset the United Kingdom economy since the war. Since 1946, we seem to have failed to escape from the stop-go cycle of economic activity. Whenever it has moved from stop to go, all our economic activity contained a bias towards housing and property rather than towards long-term investment in industry. We have lacked long-term finance in industry and those structural problems have for ever drawn us downwards.
I hope that the House will allow me to flash back in history and refer to the late 1980s. As a new, green and perhaps naive young Member of Parliament, I am still able to admit that the Government are capable of making an occasional mistake. In the time available to me, I want to analyse that mistake.
At a crucial stage in the economy's cycle, we needed to raise interest rates. However, because that crucial decision was about to be made in the aftermath of the 1987 stock market crash, we did not take the necessary steps to raise interest rates then for fear of the slump that some predicted might follow. Indeed, that coincided with a complete surreptitious change of policy which many people did not realise was taking place: we shadowed the deutschmark and forsook monetary indicators as our guide and discipline in favour of an exchange rate regime.
When it dawned on her that it was happening, the then Prime Minister, now Baroness Thatcher, wanted to increase interest rates. However, she did not do that because the political circumstances then raging in the House made it almost impossible for her to work with her then Chancellor and take the necessary steps.
We are now paying the price for Baroness Thatcher's failure to take that decision. What followed was an enormous expansion of credit. For the benefit of some our critics on the Opposition Benches, I should add that that was not caused by the decision to lower the rate of personal income tax. It occurred because monetary discipline was allowed to slip. The banks wantonly allowed people to borrow something like four times their incomes. People mortgaged up. Businesses borrowed. We built a mountain of debt which individuals and companies alike are still paying off now. We were also consumed by an infectious mood which suggested that the boom would go on for ever and perhaps even that the business cycle had once and for all been abolished. But, of course, it did not.
Something else happened, too. We joined the exchange rate mechnism of the European monetary system in October 1990. In my view, the rate at which we joined did not particularly matter. A one-off adjustment could have amended that. Indeed, I am not pathologically opposed to the exchange rate mechanism so long as it remains an adjustable system. We faced the unfortunate coincidence that Germany was reunited. Instead of showing the fiscal discipline which had dominated European economies in the decades before, Germany dramatically increased its borrowing as a result of that unification and had to adopt a high interest regime within its domestic economic management.
When we later wanted our rate of interest to fall, our links within the exchange rate mechanism kept it high. Something else happened too. We converted an adjustable exchange rate mechanism into a fixed parity system. We believed that if we were courageous we could vest in the pound sterling the qualities, discipline and strength of the deutschmark. But it was ill-judged to believe that we had the economic muscle to sustain such a fixed parity against the deutschmark. Therefore, I fear, we created our fault lines in the exchange rate mechanism and treated it in a way which invariably led to its collapse.
Some claim that the exchange rate mechanism brought down inflation. In many ways it did, but I contend that any regime of ultra high interest rates would have brought down inflation and that the exchange rate mechanism also contained some dramatic qualities which were to the detriment of our economic management and exacerbated our economic ills at the time. The ERM is not an independent discipline, as people hoped that it would be. It repoliticised, and we made it do so even more, every

movement in the exchange rate and put the focus of attention on the Chancellor of the Exchequer. An independent discipline would have removed such attention if it had been working properly.
Our short experience of the fixed parity system, with the divergent economies which were evident at the time, showed how domestic economic management can become a perverted exercise in regional policy. It showed how economic and political control is sacrificed when there is a single currency. As you may have rumbled by now, Mr. Deputy Speaker, I am against a single currency. Indeed, I believe that the imposition, although not necessarily the evolution, of a single currency is the ultimate socialist measure.
So where are we now? I share the view of my hon. Friend the Member for Esher (Mr. Taylor), who has left the Chamber for a moment, that we are emerging from the recession at long last. Indeed, in the same way as we thought that the boom would last for ever, we are perhaps too prone to the feeling that the recession might last for ever, too.
The challenge which my right hon. Friend the Chancellor addressed in today's Budget is not to repeat yesterday's errors. Instead he has taken a long-term view, as I would have wished him to do. If the cycle has not been abolished, as indeed it has not, the recovery will come inevitably, but it is as well to nurture it in the best interests of everyone in Britain.
I judge the PSBR to be dangerously high. The risks that we face in keeping it that high over several years are that we shall go straight back to the cycle of stop and go and go and stop. What we do not want is the creation of artificial demand, leading to an artificial recovery. If we were tempted to adopt such a course, we would merely suck in imports, creating illusory jobs that would soon disappear. We would return to the stop-go cycle: whenever we stopped again, the recession would become even worse and we would build an even larger deficit on our balance of trade.
The overriding guidance offered by today's Budget is that fiscal rectitude is of the utmost importance. If we borrowed excessively over a number of years, we would succeed only in increasing the interest rate; that, I think, would be the most disastrous possible event in regard to recovery. If we are to create long-term jobs rather than jobs built on yet another burden of Government debt, we must take long-term advantage of low inflation nurtured by the present Government and of the competitive exchange rate that now allows us to export. As well as reducing the public sector borrowing requirement, we must reduce expectations. Promises of excessive growth will not be met; they will simply provide an artificial path leading to the return of economic collapse.
At dawn today, I was in favour of reducing the PSBR—immediately, even, and by billions of pounds. My right hon. Friend the Chancellor, however, has before him many facts and figures that I do not possess. I note that my right hon. Friend has decided to allow the PSBR to remain more or less neutral this year. He has the figures and I accept what he has done. He also announced that, in 1994–95, the PSBR will be reduced by £6·5 billion and that it will be reduced by a further £10·5 billion in 1995–96. We should bear it in mind that, by then, the Treasury will be enjoying improved revenues from the tax take. Furthermore, my right hon. Friend has committed himself to putting the PSBR back into balance in the medium


term. I believe that we should applaud that schedule for restoring fiscal rectitude: my right hon. Friend has made the responsible decision that we need.
I am delighted that my right hon. Friend has clarified the workings of petroleum revenue tax. Contrary to the opinion of many Opposition Members, the money that we have gained from the remarkable enterprise displayed by those who found oil in the North sea has not been squandered. If Opposition Members wish to say that spending on schools, hospitals and the needy is squandering our oil revenues, let them say it as loudly as they wish; the fact is, however, that the use of those revenues, and the stewardship of the economy, has been thoroughly responsible. The regime announced by my right hon. Friend the Chancellor will ensure that further investment takes place in the North sea and that we continue to experience flows of oil—and, indeed, tax—to the benefit of the Exchequer.
I am pleased that my right hon. Friend has improved the conditions relating to export credit guarantees, which he improved once before in the autumn statement. I am also pleased that he has tightened the little loopholes in the business expansion scheme, which enabled it to be used to provide loans; that is long overdue.
The hon. Member for Burnley (Mr. Pike) criticised my right hon. Friend for doing nothing about research and development. The reforms announced by my right hon. Friend in relation to advance corporation tax, however, are crucial to ensuring that large companies choose the United Kingdom for their headquarters and opt to carry out research and development here. The hon. Gentleman cannot claim that my right hon. Friend has done nothing for research and development.
I am pleased that my right hon. Friend the Chancellor has said that companies should no longer purchase other companies in order to cash in on their recorded capital loss. That announcement marks the long-overdue closure of a loophole. For those business men at present eligible to pay VAT, my right hon. Friend has raised the threshold to £37,600, which will be of particular advantage to small businesses up and down the land. It will remove the necessity for such businesses to have to fill in a quarterly VAT form.
One Opposition Member has today criticised my right hon. Friend the Chancellor for alleviating some of the capital gains tax provisions for those who want to sell a company. What could be more beneficial to the economy now than for someone who has been successful in one enterprise to be able to dispose of that on a fair basis of his taxable obligations, start again in another company and make a success out of that? How on earth can anyone see fit to denigrate that sensible measure?
I was also particularly pleased that my right hon. Friend the Chancellor announced that those who conduct a business in the purchase and sale of bloodstock may now register for VAT. It is a tribute to the energy of many hon. Members, notably my hon. Friends the Members for Cambridgeshire, South-East (Mr. Paice) and for Bury St. Edmunds (Mr. Spring), and to my right hon. Friend the Paymaster General, that such a sensible agreement has now been reached to alter the tax regime for that industry, which would otherwise be facing blight.
I am sure that everyone in the House would also want to pay tribute to the late Judith Chaplin, who quietly but diligently worked behind the scenes with great energy to ensure that the issue was properly understood in the

Treasury. My right hon. Friend the Paymaster General can attest to that by citing many examples of when she went to see him to argue the case for those affected by the VAT provision. Her death was sad and she will be sorely missed in the House. Those who knew her well in Newbury will not forget the work that she did on their behalf.
To return to my original theme of the structural deficiencies in the economy, I welcome what my right hon. Friend the Chancellor has done to improve some of the structural distortions. I am pleased that he has changed the regime of mortgage interest relief so that it is given only at the 20 per cent. rate. I was also pleased that he improved both the scope and the size of the small company loan guarantee scheme for fixed rate finance. I think that that will turn out to be a major step to ensure that long-term finance is available for small and medium-sized businesses. He announced an export guarantee scheme and today announced a domestic credit guarantee scheme, which is to be applauded.
All those proposals sit in dramatic contrast to everything that we heard from the Opposition. We have heard the incantation of platitudes about creating jobs, making promises and the insufficient support given to the constituency of Hackney, but we have not heard from the Opposition a single positive detailed policy for economic recovery which they think that they could run with and present to the electorate. Nothing that the Opposition have said has been costed—it was all words, words and no detail. In addition, they even promised not to raise taxes. They make promises that add up to billions of pounds, but somehow believe that those billions will appear from thin air. They are not prepared to show any integrity and state by what means they intend to raise those billions from the economy.

Mr. David Shaw: No doubt, like me, my hon. Friend has been to the Library to see the Labour party proposals on the subject. No doubt, like me, he was shocked to find that nowhere in those proposals—which are designed to advise constituencies on what they should be doing to help employment—is it suggested that the workers in Labour party constituencies might start a business. Nowhere do they suggest that they might take advantage of the extension of the Government's loan guarantee scheme, which my hon. Friend the Member for Rutland and Melton (Mr. Duncan) so eloquently supported tonight.

Mr. Duncan: I am grateful to my hon. Friend. Opposition Members do much intoning about business, but it turns out that every step they take destroys business. The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) has complained that there are no businesses in Hackney. With the local authority that Hackney has, it is not surprising that business men do not wish to go there. I openly and readily accept the hon. Lady's kind invitation to visit Hackney with her. She is not present at the moment, but I can assure the House that, when I go, I shall tell her a thing or two. I hope that she will learn what could be done in Hackney to improve employment prospects and restore the economy of that sad constituency.
Labour Members have criticised the decision to levy VAT in a staged manner on domestic fuel. This attitude sits ill with the Opposition's repeated contention that there should be a carbon tax and that the Government should


adopt policies that Labour Members would describe as green. They say that they want green policies, yet they do not want to pay the cost of environmental improvements. They must unravel their inconsistency. I await an announcement from them of measures to link green policies with tax policies to secure their implementation.
In conclusion, I offer my congratulations to my right hon. Friend the Chancellor of the Exchequer and his team. My right hon. Friend continues to have my vigorous support. Indeed, I look forward to his stepping out of No. 11 Downing street on his way to the House to present his fourth Budget in November.

Mr. Derek Enright: The hon. Member for Rutland and Melton (Mr. Duncan) is all heart. My withers were wrung by his speech about financial rectitude and structural efficiency. He really is all passion for England. It is a shame that his speech developed as it did, as he started off quite well. Having dealt with 1946, he embarked upon the story of the decline of the economy. The trouble is that he jumped from 1946 to 1988–89—a very swift transition. I should like, in the few minutes available to me, to fill in some of the history.
Let us look first at what happened in the 1970s. Under successive Governments, including those of the right hon. Member for Old Bexley and Sidcup (Sir Edward Heath), Lord Wilson of Rievaulx and Lord Callaghan, oil prices gave rise to tremendous difficulties. Lord Wilson and Lord Callaghan had to deal also with the Barber boom—a mistake which, as has just been said by the hon. Member for Rutland and Melton, was repeated by Lord Lawson. Let us take into account the real world difficulties that existed at that time and the fact that there were none of the advantages of the tax from oil that the current Government have enjoyed and the huge sums of money that were generated by privatisation—illegal gains, in my view, but, none the less, moneys that came to the Government. I use the plural "moneys" advisedly, in its true Oxford English Dictionary sense.
What use have the Government made of those moneys from the point of view of long-term employment? The record of 14 years of Conservative rule is one of constantly rising unemployment. The north has always been hit because the Government care very little about what happens outside the south-east. The south-east is where the strength is, where the power comes from and where the snouts are.
I would not sit complacently on the Government Front Bench after today's Budget. If a private company had gone for a contract, had put forward a prospectus and had spoken about that prospectus in the way the Government spoke about their manifesto at the general election and then produced today's Budget, they would have been called fraudsters and hucksters. That is what the Government are.
No matter what claims they make about VAT on energy, the Conservatives said clearly during the election campaign that there would be no rise in those taxes, "Trust us," they said; we heard from a soapbox the equivalent of

"Read my lips." The majority of the people did not trust them, but enough trusted them to put them in power. They trusted the statement that there would not be an increase in taxes. Yet today we have a record increase. The Government have turned round the old saying, "Jam tomorrow but no jam today." It is a case of, "You will not suffer today but, by God, you will suffer tomorrow and even more the year after."
There are other ways of controlling pollution, as Conservative Members know if they have an atom of sense. To put VAT on fuel bills in the way proposed by the Government is outrageous. It will hit the poorest section of the community. The tragedy is that this passes for the Government's energy policy. We have been beseeching them for a long time to produce an energy policy. Suddenly they come up with one—to slap 17·5 per cent. VAT on energy costs.
The Government have challenged us. While they have been clinging to strange little ring-o'-roses arguments about the ERM and all the factions in the Conservative party have been giving different interpretations, I will tell them what they should have been doing. They should have been putting forward in the European Community a policy for energy. The Commission has produced a paper and the subject has been talked about in the European Parliament. There is no parliamentary report on it. What response has been made by our Government? Their only response is to try to put 31 pits out of existence. That is a disgrace.
In the short time left, I should like to refer to a gross failure of the Government in the case of Grimethorpe colliery. As we have been telling the President of the Board of Trade since last October, that colliery was making a considerable profit up to the time that it was closed. On closure the industrial firms that it supplied were nearly put out of business. They had to find alternative supplies and pay more for imported coal.
A report was published yesterday; actually, it came out a considerable time ago but, as with everything with the Government, it was kept secret until the last minute. In clear, unequivocal terms the Government's own specialist said that Grimethorpe has a long-term future and can make a profit because there are customers for it. Why do not the Government reopen it instantly? What is the grand strategy that means that pits like Grimethorpe should close? The Government's only strategy is laissez-faire. That is no strategy in these days. It is not the sort of strategy adopted by the Japanese. The Government are fond of talking about the Japanese, so we should see how they conduct their capitalist system. They have a partnership between the capitalist institutions, the trade unions and the state under which they proceed sensibly in the long term.
My final point is about the heedless way in which the King's Cross announcement was made. For my part of Yorkshire, the rejection of King's Cross was an absolute disaster. For Port Wakefield, to which the Government have given their permission and backing, it was appalling. The Government must reconsider their decision, otherwise it will lead not to sudden death but to strangulation by degrees.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.

Billy Harris

Motion made, and Question proposed, That this House do now adjourn—[Mr. Kirkhope.]

10 pm

Mr. John McAllion: Less than 24 hours ago, Grampian Television broadcast a TV special called "The Open (and Shut) Case" on the as yet unexplained death of Billy Harris in Glasgow on the evening of 3 August 1989. The programme was produced by Michael Mulford, who, with Billy's family in Dundee, has spent the past three years painstakingly and determinedly pursuing the truth about what happened to Billy that night.
The Minister, like me, has benefited from seeing the Grampian TV special and from discussing the case directly with Michael Mulford. I am sure that I speak for both of us when I place on record our heartfelt thanks to Grampian Television and to Michael Mulford, but above all to Benny and Marie Harris and their family, without whose courage and unfailing determination the search for the truth about what happened to Billy would have been abandoned long ago.
What little do we know about the truth of what happened to Billy? We know that he died of severe head injuries. We know that his body was found in National Bank lane, Glasgow. We know that his body was first seen on the night of 3 August but not officially found or reported until the morning of 4 August. In all honesty, after that we know very little with any certainty.
Billy's case has variously been described by the authorities as murder, potential murder, suspicious and an accident. Naturally, the family have been totally bewildered by such official inconsistency and confusion—and no no wonder, given what they have been told by the authorities.
Will the Minister confirm that Strathclyde police initially passed a message to Tayside police within hours of Billy's death, which read:
William John Harris had this morning been found dead in a lane in city centre of Glasgow. He apparently had head wounds. No money or other valuables in his possession. Locus where he was found known for assault and robbery of homosexuals. Case is being treated as a murder inquiry although the post mortem came up with nothing helpful.
I should be grateful if the Minister would confirm that Strathclyde police passed that message to Tayside police, who in turn passed it on to the family.
In a letter dated 23 May 1990, the then Lord Advocate, Lord Fraser, wrote to my hon. Friend the Member for Dundee, West (Mr. Ross) indicating that the case in its early stages was being treated as "a potential murder". Will the Minister confirm that that was so in the early stages of the case?
The Crown Office, in various letters, has repeatedly referred to the case as "suspicious". Would the Minister say whether it still takes that view?
Strathclyde police have told the family on two occasions that it believes that Billy's death was an accident. On the first occasion, Detective Chief Inspector Val Gryzbeck telephoned Billy's mum in November 1989 to tell her that in his view it was an accident.
On the second occasion, in March 1990, two Strathclyde officers visited the Harris home in Dundee. An account of what they said was shown on the Grampian TV special, in which Billy's dad described how an officer explained to him how the accident came about. The officer

described how Billy, who at the time had a blood alcohol count of 345 mg/ml and was very drunk, was supposed to have fallen back four or five times on to the same stairs, hitting his head in the same way.
The Minister has seen the programme and will remember how Billy's dad described the way in which the officer described the accident to him; how Billy fell over once, then twice, then three times, then four times, then a fifth time. The officer thought that it was on the fifth occasion that Billy sustained the injury that caused his death.
Does the Minister really believe that version of an accident? Does he not agree that a man as drunk as Billy was would have done well to stand up at all, never mind repeat four or five times a fall which even once would have rendered a sober man unconscious? Is it not a much more credible explanation that we are dealing with a murder, not with an accident?
How does the Minister explain the changes in the police view of how Billy died? They first of all tell Tayside police that it is a murder inquiry. They then interview potential witnesses in the local pubs in the Glasgow area, explaining that they are investigating a murder. Then, suddenly, the accident theory begins to emerge. Can the Minister suggest any reason why this should be so?
For example, the annual report for 1989 by Strathclyde's chief constable reads:
The reduction in murder inquiries I welcomed in my last report was not sustained in 1989, with 63 murders and culpable homicides investigated, nine more than in 1988. This increase inevitably strained investigative resources, and it is therefore of considerable satisfaction that a 100 per cent. clear-up rate was achieved.
That is fine, but will the Minister therefore confirm that the official view now is that Billy's death in 1989 was neither murder nor culpable homicide, but an accident?
Detectives who investigated the case put it to the family at an early stage that Billy was homosexual. They produced no evidence whatsoever to support this allegation, which naturally shocked the family, who continue to reject this allegation. They point out that Billy was living with his girl friend, Elizabeth Lees, in Clydebank at the time of his death. Elizabeth Lees has called into question the accuracy of police judgments by confirming that on one occasion she and Billy were at home watching television when the police claimed that Billy was seen in Glasgow.
Billy was not known to the gay community who were interviewed by television researchers. There is simply no factual evidence to support the allegation of homosexuality. So will the Minister reveal whether the post mortem showed any evidence of homosexual activity? Did it show either anal or penile damage? Does the Minister not agree with the family's lawyer, Bob Vaughan, and with Carole Ewart, director of the Scottish Council for Civil Liberties, who say that the investigation could have been sidetracked unnecessarily by unsubstantiated allegations of homosexuality?
Where is the police evidence that Billy was homosexual? Will the Minister give the sources for this evidence? The family are prepared to face the truth about Billy, but they cannot be expected to tolerate unsubstantiated allegations about their son and their brother, particularly when those allegations come from the official authorities.
Then there is the suspect who was questioned at an early stage of the inquiries. This suspect was identified by a Mr. Gary Hall, a doorman at the Maison Guy's pub in


Glasgow. He refused entry to Billy and another man at 9.45 pm on 3 August because Billy was drunk. He described the other man as 6 ft 2 in tall and of substantial build. This man has been traced by the programme makers, but they have not named him, in the interests of justice and fair play, and I agree with them.
The suspect was picked out in a police identification parade. He was remembered by witnesses because of his unusual dress on that evening of 3 August. He wore a grey suit with trousers and jacket that did not match, a tee-shirt and trainers. Gary Hall, who is an ex-soldier and a trained observer, had no problem whatsoever in remembering this suspect, because of the distinctive way in which he was dressed. Gary's sighting of the suspect with Billy was just one hour before, and 500 yards distant from, the first sighting of Billy's body in National Bank lane.
A number of questions arise out of those circumstances. Was the suspect interviewed under caution by the police? If so, for how long? Why was the suspect never charged, and did the alibi provided by the suspect's wife and male friend bear up under police examination? Is it still the Crown's position that Gary Hall was simply completely wrong in his identification of the suspect with Billy Harris on the evening of 3 August in Glasgow?
The Grampian researchers have now handed to the police and to the procurator fiscal evidence which casts doubt on the suspect's alibi. Will the Minister acknowledge that Grampian Television and Michael Mulford have acted with commendable responsibility by not publicising the evidence, and by allowing the authorities the time and opportunity to follow it up? Will the Minister say what progress the authorities have made in following up the evidence? Have the suspect, his wife and his male friend been re-interviewed? It would be very good to have such facts on the public record.
I should like to comment on the evidence of Dr. Jim Thorpe of Strathclyde university, who carried out an independent forensic examination of Billy's clothes at the request of Grampian Television. He discovered that Billy had been injured in one location and was then helped by someone else along the road to another location. He found bloodstains on the inside of Billy's jacket pocket and elsewhere on Billy's clothes. He concluded that death could have resulted from an accident if someone who was being half-carried had slumped to the ground several times. However, I shall quote from the transcript of the television special. On the record, he said
it is of course possible that the injuries were inflicted deliberately—whoever was with Billy banged his head off the ground in pure exasperation at no longer being able to support this dead drunk person and inflicting more severe injuries than were intended. Of course I cannot exclude the possibility that the injuries were intended to kill.
Will the Minister say what the Crown concluded after examining the evidence found in National Bank lane on 3 August 1989?
Of course, we might have understood much more if the family could have been given access to the post mortem report, which so far has been denied them. Their lawyer, Bob Vaughan, made arrangements through the procurator fiscal and the Crown Office to precognose Dr. John Clarke, the pathologist who examined Billy's body. Airline

tickets were booked to travel south to see Dr. Clark. Mr. Vaughan was practically on his way when the Crown Office banned the interview.
Will the Minister say why the Crown Office banned the interview? What secrets could justify the withholding of post mortem results from the family? Do the family not have a right to know what the post mortem results were? What were the results of the forensic tests carried out on Billy's clothes and on the suspect's clothes? Are they also to remain secret for ever?
The family have asked me to raise a serious matter relating to their interview with Mr. Tom Dysart, senior depute fiscal in Glasgow, on 8 March 1990. The family understood Mr. Dysart to have told them that the pathologist believed that Billy had been murdered, that Billy's injuries were consistent with having his head banged on the steps, that Billy was known to have frequented gay bars, that that information was confidential, and that, if they revealed it to anyone else, it would be said officially that Billy had died from an accident and the case would be closed.
Subsequent to that interview, the family granted an interview to a Sunday newspaper—they believe that it was the Sunday Mail—and, two weeks later, two Strathclyde officers appeared in Dundee to tell the family that, in the view of the police, Billy's death resulted from an accident. Was a minute kept of the meeting between the senior depute fiscal and the Harris family in Glasgow on 8 March 1990? Will the Minister make that minute public so that we know what happened at that meeting?
The family's campaign for a fatal accident inquiry has been consistently resisted by the authorities. The Crown Office has taken the view that an inquiry would substantially prejudice any future criminal proceedings, but is that credible when the police have twice claimed that Billy died as the result of an accident?
Is it credible when the Criminal Injuries Compensation Board refused compensation only last month to the Harris family because their Queen's counsel was not satisfied, on the evidence available, that the deceased Billy Harris was the victim of a crime of violence? Is it credible, three and a half years after the event, with no sign of consistent police inquiries or an arrest on the horizon, to continue to resist the family's call for a fatal accident inquiry?
The Fatal Accidents and Sudden Deaths Inquiry (Scotland) Act 1976 allows the fiscal to hold a fatal accident inquiry if a death is sudden, suspicious or unexplained, or gives rise to serious public concern. Surely the Minister will concede that Billy Harris's death meets every one of those criteria and that surely there should now, at the very least, be an announcement by the Minister that the procurator fiscal is prepared to hold a fatal accident inquiry into the events of 3 August 1989.
May I raise one or two other concerns? Does the Minister agree with Carole Ewart, the director of the Scottish Council for Civil Liberties, who says that the system has simply failed the Harris family, and who has now called for an independent inquiry into the whole criminal justice system in Scotland? Why was it that the present procurator fiscal banned Strathclyde police from appearing on the Grampian Television programme about Billy's death, when the police were prepared to consider appearing?
Why was it that Billy's body was kept for 42 days in Glasgow mortuary at temperatures that allowed his body to decompose, so that, when it was finally released, Billy's


family were not allowed to see it and Billy Harris was buried in a disinfected body bag? Experts have said that the practice when keeping bodies at such temperatures is to do so for only three to four days at the most. Why was the body kept in Glasgow mortuary at those temperatures, not for three to four days, but for 42 days? I think that an explanation and an apology are due to the family for that.
It matters not what is said about the kind of man that Billy Harris was. He was, after all, a human being, who deserved to be treated with the same dignity as every other human being. Certainly, after his death, the authorities seem to be more concerned to defame him than to find out what happened to him. Both he and his family deserve better from those same authorities. If he died by accident, we need a fatal accident inquiry to explain how he died. If he did not die from an accident, we need a murder inquiry to find out who did it, why he did it and how.
Above all, his family cannot be left in their present state of uncertainty. They have contemplated exhuming their son's body in an attempt to discover the truth of what happened. They have decided not to erect a headstone on his grave until they know the truth about their son. All this tragic family want to know is the truth of what happened to Billy Harris. I appeal to the Minister to listen to them and to help them in any way he can, and to allow them at last to be able to lay their son Billy Harris finally to rest, and in peace.

The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton): I note the suggestion by the hon. Member for Dundee, East (Mr. McAllion) that a fatal accident inquiry should now be held, and I shall pass that suggestion to my noble and learned Friend the Lord Advocate.
I thank the hon. Member for passing to me the video of Grampian Television's documentary this morning. I have studied it twice and with great care. I am grateful to the hon. Gentleman for the clear and careful way in which he outlined the sad circumstances surrounding the death of Mr. Harris. I would ask the hon. Member to convey my sympathy to the Harris family.
I welcome the opportunity provided by this debate to respond to the points raised by the hon. Member, as this has obviously been a source of grave concern to the family. For Mr. and Mrs. Harris to lose their son at an early age in such distressing circumstances must, of course, have been very upsetting for them. The hon. Member has outlined in some detail the events immediately preceding the discovery of his body in Glasgow city centre in the early hours of 4 August 1989, as well as certain developments that have taken place since then. In particular, the hon. Member raised the question of the timetable for the release of Mr. Harris's body to the family for burial, as well as the question of the storage of his body at the city mortuary. I shall deal first with that matter.
By way of background, I should explain that it is, and has always been, the police view that this is a potential murder case. I fully recognise Mr. and Mrs. Harris's concern about the delay. The hon. Gentleman will bear in mind the fact that the case was, and still is, being treated as a potential murder, so the body had to be retained for a reasonable period pending the possible arrest of any person or persons in connection with the death.
As the House may know, any person accused of murder in Scotland is entitled to have an examination of the victim's body carried out by an independent pathologist, so the body cannot be released until an independent autopsy has been conducted, or the accused indicates that he does not wish to instruct independent examination. In this case, the police inquiry did not identify any person as responsible for the death of Mr. Harris, although a man was interviewed under caution and inquiries have been on-going. In those circumstances, Mr. Harris's body was kept in the city mortuary for some six weeks, until the procurator fiscal instructed its release to the family on 7 September.
Members of the family have had the benefit of two full meetings with the senior procurator fiscal depute in Glasgow, Mr. Dysart, who dealt with the matter. At the first of those meetings, Mr. and Mrs. Harris explained that, when their son's body was released to them, the undertaker had refused to allow them to see the body because of its decomposed state. It was suggested to them that they should invite the undertaker to write to the procurator fiscal with further details about the matter so that he might pursue the issue with those responsible for the storage of bodies at the city mortuary.
The Lord Advocate has responded, making it clear that, while the retention of a body pending criminal investigations is subject to the procurator fiscal's direction, the question of the means of storage of bodies is not something for which the procurator fiscal is responsible. That matter is at the sole discretion of the mortuary staff.
I should perhaps reinforce the position by repeating what the Lord Advocate said to the hon. Gentleman, who wrote to him. He said that Dr. McLay, the chief medical officer of Strathclyde police, responsible for the mortuary, wrote to the solicitors acting on behalf of the Harris family in March explaining what had occurred. He also wrote to the hon. Gentleman.
Dr. McLay explained that Mr. Harris's body had been stored in non-deep freeze conditions because of the expectation that further examination would become necessary. In the event, such further examination was unnecessary. Dr. McLay frankly conceded that it was regrettable that the manner of storage led to certain decomposition of the body. He offered personally to meet the family to discuss matters, but, as the hon. Gentleman may know, that offer was not taken up. I am not aware that any reason for that has been given, but in view of the serious complaint that has been made, I will pass it to the chief constable for his personal consideration.
In addition, the hon. Member for Dundee, West (Mr. Ross) also wrote on behalf of the family to my right hon. Friend about the circumstances surrounding the death, and received a detailed reply. Following his untimely death, Mr. Harris's body was discovered by a young man, who immediately alerted the police. That was at about 5 o'clock in the morning of 4 August 1989. Subsequent inquiries revealed that a young couple had seen a body lying where Mr. Harris was ultimately found at about 11 o'clock the previous evening, but they had not reported the matter to the police. That fact was pointed out to the hon. Member for Dundee, West.
A casualty doctor was summoned to the scene, and Mr. Harris was pronounced dead. In accordance with normal practice at suspicious deaths, a senior member of the procurator fiscal's office was summoned to the scene. along with a pathologist and a forensic scientist. Serious


crime officers were also in attendance, and a detailed examination of the scene, at which a series of photographs was taken, was completed. Mr. Harris's body was then removed to the mortuary, where an autopsy was carried out.
As the hon. Gentleman will know, following the post mortem examination, the pathologist concluded that injuries to the back of the head were the major factor in Mr. Harris's death, although they were exacerbated by the high level of alcohol in his system. In due course, the family were informed of the causes certified on the death certificate.
The case was treated as a murder inquiry from the outset, and a full investigation was launched under the charge of a senior detective officer. A thorough investigation of the circumstances surrounding the death of Mr. Harris was carried out by the police, which included interviewing a number of witnesses who either knew Mr. Harris or associated with him, including those in whose company he had last been seen alive.
Members of the Harris family were also interviewed to try to build up the fullest possible picture of Mr. Harris and the events which preceded his death. For reasons which will become obvious, it will not be appropriate for me to go into great detail as to what those inquiries revealed, or to name all the witnesses that were interviewed. Following the inquiries, a detailed report was submitted by the police to the fiscal's office in Glasgow.
In accordance with normal practice, after the procurator fiscal's office had carried out its own inquiries—liaising closely with the police—a full report was submitted to the Crown Office for the instructions of Crown counsel. On the basis of the information contained in the procurator fiscal's report, Crown counsel took the view that it was not appropriate to instruct a fatal accident inquiry into the circumstances surrounding Mr. Harris's death. As the hon. Member will appreciate, no one has been identified as being responsible for causing the injuries from which Mr. Harris died. However, the possibility remains that a person may yet be arrested in connection with the death and, accordingly, public disclosure of all the facts could very well prejudice any future criminal proceedings.

Mr. McAllion: Does the Minister accept that a precedent exists in the case of Mr. Sandy Drummond of Fife, who died in suspicious circumstances? The case became a murder inquiry, yet the procurator fiscal allowed a fatal accident inquiry to go ahead, and that opened up new lines of evidence that helped the murder inquiry.

Lord James Douglas-Hamilton: Yes, it is indeed a precedent, but the circumstances are not exactly the same. However, as I said, I shall pass on the hon. Gentleman's request to my right hon. Friend the Lord Advocate, and it will then be a matter for him.
I should make it clear to the hon. Gentleman that, at the meeting between Mr. Dysart and the family, the fiscal explained the position to Mr. Harris's parents. It is quite misleading to suggest that Mr. and Mrs. Harris have somehow been denied information by the authorities.
Turning to the police investigation, inquiries revealed that Mr. Harris had been drinking in bars in the Glasgow

city centre on the evening before his body was found. He was last seen at about 9.45 pm on Thursday 3 August in 1989 in the company of another man, at which time they were refused entry to a public house which has been frequented by homosexuals.
The question whether the deceased was homosexual was a possibility to which the police felt they had to have regard, but there is no conclusive evidence either way. With regard to the hon. Gentleman's question as to whether there is any evidence from the post mortem suggesting any homosexuality, the answer is that there is none.
The hon. Gentleman asked whether a minute was kept of the meeting between Mr. and Mrs. Harris and Mr. Dysart. The answer is that there was no minute.
The hon. Gentleman asked about the terms of the post mortem report, but these are being treated as part of the evidence of the case. Given that the case is an on-going criminal inquiry, it was considered that it would have been wrong to divulge all aspects of the evidence.
As I have mentioned, the body was found in the yard behind the premises of John Smith's book shop in St. Vincent street, Glasgow at about 5 am on Friday 4 August. Mr. Harris had sustained severe head injuries, which, as I have said, were the major factor in his death. He had an extremely high level of alcohol in his blood and the pathologists were of the view that this would have worsened the effects of the head injuries and would have been a contributory factor to his death. What I think needs to be emphasised particularly is that it cannot be said at present with any certainty how William Harris sustained the injuries from which he died.
I must stress that the investigation into the death of William Harris is still open. The hon. Gentleman referred to the television programme, which I have studied. I understand that it appeared to be critical of the fact that no one had been charged. The reason for that is clear and simple; there is insufficient evidence to bring charges. I have made it clear that a suspect was interviewed under caution. In addition, the programme claimed that the Harris family may have been misled by the authorities and unfairly denied a fatal accident inquiry, and that this somehow adds to the notion that certain important details about their son's death have been kept from them.
The Harris family received a very high degree of understanding and co-operation from the authorities, not least from the police and the fiscal's office. The family continue to demand an inquiry and remain critical of the police handling of the investigation. I have to say that the programme contained little new information which is not already known to the police. No words of comfort can undo what happened, but I believe that this debate has served to highlight the fact that the case has, regrettably, not been cleared up.
William Harris's death is undoubtedly suspicious and must therefore remain a cause for serious concern. For that reason, this is a case which is still open, and I will pass on the hon. Gentleman's main request—

The motion having been made at Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half past Ten o'clock.